Finland plans to adopt new tools to curb household debt in 2023

board The Finnish Financial Supervisory Authority (Fiva) has primarily instructed lenders to provide mortgages to applicants whose overall debt repayment costs are estimated to be less than 60% of their net income under stress conditions. doing.

The stressful debt repayment-to-income ratio should be calculated taking into account the entire debt burden of the borrower, including loans, capital costs, and stressful service costs.

The maturity of the loan must not exceed 25 years and the interest rate must be at least 6 percent in the calculation, excluding fixed rate loans and loans hedged against long term interest rates.

The recommendation is expected to come into effect on January 1, 2023.

Maruya NikkanenThe Fiva Chairman of the Board said the recommendation is an attempt to emphasize the need to exercise restraints that allow long-term and large loans.

“Excessive and increasing levels of household debt pose structural risks, which is even more important given the general rise in interest rates near the horizon,” she says. underscore..

The Board has previously issued a number of recommendations for lenders to use restraints when considering applying for a loan that is larger than the applicant’s income and has a longer repayment period than usual. However, household debt levels continue to rise despite recommendations.

According to the Bank of FinlandThe average household had a debt burden equivalent to 134.2 percent of disposable income at the end of 2021.

Fiva reported on Tuesday that the board of directors has decided to extend the validity period of the 85% cap on mortgages that came into effect in October 2021.

Finnish finance has expressed embarrassment by recommending a limit on debt repayment burden, presuming that authorities are introducing new tools to limit mortgage borrowing in Finland.

“This is a recommendation, but it clearly induces credit by banks, much like stress testing on mortgage borrowers has already been done for about a decade.” Said Beri Matty MatillaDirector and Chief Economist of Finance Finland.

Interest groups reminded both policy makers of agreeing not to introduce other income-based borrowing restrictions and various regulatory projects underway to address household debt.

Earlier this month, the Finnish government proposed banning mortgages with a repayment period of more than 30 years and limiting mortgages to 60% of real estate debt-free prices. Meanwhile, the Ministry of Justice is drafting a bill that introduces a strict cap on consumer loan interest rates.

“These affect the ability of households to apply for and be granted a loan,” Matira said.

He added that Fiva’s recommendations have not been evaluated along with other measures in preparation and it is difficult to predict how much lending will change in the future.

Juho KostiainenNordia economists point out that debt repayment caps are similar to the government’s abandoned proposal last year to limit household debt to 500% of total annual income, except that it is based on net debt. Did. Not total income.

This recommendation thus drives politically abandoned ideas from the back door.

“This proposal may be better than the original proposal, but it may not have the same kind of political mission,” he commented.

Aleksi Teivainen – HT Finland plans to adopt new tools to curb household debt in 2023

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