The current loan-to-value cap on housing loans urgently needs to be accompanied by a new, more comprehensive cap on debt. This would take into account all a loan applicant’s debt relative to their income.
The indebtedness of Finnish households relative to income has grown considerably since the turn of the millennium. A proportion of new residential mortgage holders have a heavy debt burden relative to their income.
Finnish banks have granted relatively little credit to those industries most vulnerable to bankruptcies. This has helped minimise banks’ corporate credit risks.
Foreign investment in the Finnish and other Nordic property markets has increased. As a consequence the Finnish market is more vulnerable to external risks.
The accessible summary sums up the solutions presented in the Bank of Finland’s stability assessment that can get a grip on households’ excessive debt levels.
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