Earlier, we were reported by the Financial Supervisory Authority (Good Finance) to have criticized the mortgage ceiling on mortgages introduced last summer. See http://bluequillflycompany.com
The loan ceiling is intended to curb household over-indebtedness and to prevent the housing market from overheating, but in the opinion of the Financial Supervisory Authority, the targets have not been achieved in the best possible way.
Loan ceiling regulation should be changed
Good Finance has suggested that the loan ceiling regulation should be changed to better achieve its goals. According to the proposed changes, the size of the mortgage could be related, for example, to the borrower’s annual or monthly income. In addition, the borrowing would only take into account the value of the home to be purchased and no other collateral available.
Desperate Consequences of Loan Censorship?
Economist of the Federation of Finnish Financial Services, tightening the loan ceiling and the subsequent difficulty in obtaining a loan would lead to an increase in demand for rental homes, which in turn would further increase rentals.
As the tightening of the loan ceiling would make home exchange more difficult, labor mobility would also suffer. Reduced labor mobility would, in turn, be detrimental to investment and economic growth. In Mattila’s view, inequalities between households are widening and family backgrounds are beginning to have a greater impact on the choice of housing and residence if the loan ceiling is tightened.
Finns are conscientious mortgage payers
A forthcoming study commissioned by the Federation of Finnish Financial Services, Savings, Borrowing and Payment Methods, reveals that Finns are conscientious mortgage payers. The average mortgage repayment period in Finland is 19 years, while in the other Nordic countries the periods are considerably longer. The average size of a mortgage in Finland over the past two years has been EUR 154,000.
Most mortgage debtors (77%) are also prepared for interest rate increases, for example by saving and investing. Typically, less than 30 per cent of Finns’ net income goes to debt service, and only less than three per cent takes over half of their net income.