Bank of Finland is calling for further steps to curb household debt

Bank Finland is calling for additional steps to curb household debt.

Bank of Finland said on Wednesday that household debt has risen to record highs, with larger mortgages and longer repayments than before, further threatening the stability of the financial system. .. 25 year standard.

“Households need to assess their ability to repay debt to ensure they can withstand rising interest rates, rising daily costs and the potential uncertainty of the labor market.” advice Maruya NikkanenDeputy Governor of the Bank of Finland.

The European Central Bank may raise reference rates by this fall. However, market expectations for the past few weeks have been that accelerated inflation will begin tightening monetary policy this summer.

In Finland, mortgage rates usually fluctuate according to the reference interest rate.

Nykänen pointed out that there are signs that products that prevent rising interest rates are becoming more popular among borrowers. “Interest rate protection reduces the risks associated with rising interest rates, especially in situations where interest rates have risen more than expected,” she commented. Press conference In Helsinki on Wednesday.

The Finnish government has submitted a proposal to curb household debt through macroprudential measures such as maximum mortgage and mortgage repayment periods, mortgage caps and repayment obligations. According to the Bank of Finland, the proposed reforms are needed, but they alone cannot curb the increase in household debt.

The government also said it needed to implement a debt or debt repayment cost cap related to the borrower’s income.

“I’m not going to be in the percentage because household debt ratios are constantly increasing. It would be fair to talk about moving targets,” Nykänen said.

According to YLE, the average debt burden of Finnish households is equivalent to 130% of annual disposable income.

The Bank of Finland said Finland’s financial system is stable despite growing threats from worsening economic outlook, rising energy prices, pressing interest rate hikes and difficulty in raising funds. Therefore, it is necessary to take measures to increase the resilience of not only borrowers but also banks and payment systems.

It reminded us that the banking sector’s vulnerability is not solely due to household debt. They are also exacerbated by the centralized nature and considerable size of the sector, as well as possible external events such as pandemics and wars in Ukraine.

“Vulnerability requires banks to be highly resilient in all situations. Authorities need to be better equipped to ensure that banks have sufficient buffers on rainy days. Yes, it should be possible to integrate a bank’s capital buffer in more ways than it is today, “says Nykänen.

Pervasive uncertainty also poses other significant threats, such as cyberattacks and disruptions to payments, payments and other important social functions.

“The financial sector is part of the supply chain and we must not allow break-even points in emergencies. If for some reason the system is blocked, we will otherwise make payments that are essential to the functioning of society. You need to be able to manage it. “

Aleksi Teivainen – HT Bank of Finland is calling for further steps to curb household debt

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