Nordic housing market showing strength, but not without risks
Housing and real estate trading has continued despite the economic uncertainty. The rapid rise in prices and lending growth are increasing the vulnerabilities of Nordic banks.
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New mortgage-borrowers have an increasing amount of debt relative to income
A larger share than before of new housing loans have been granted to highly indebted households. Large amounts of debt are particularly common among households in the growth centres. A debt-to-income cap would rein in excessive indebtedness.
Nordic countries are vulnerable to housing market risks aggravated by the coronavirus pandemic
The coronavirus pandemic has the potential to aggravate long-standing vulnerabilities in the Nordic housing market. Housing market disturbances can increase credit risk for banks and interfere with their access to funding.
The highly indebted cut spending as the economy slows
The more debt households take on during an economic upswing, the more likely they are to cut consumption when the economy begins to run out of steam.
Risks on the Swedish housing market also a cause for concern in other Nordic countries
An extensive materialisation of risks on the Swedish housing market could also have notable effects in the other Nordic countries.
Wide regional disparities in Finnish house prices and household indebtedness
Housing debt has grown, both in absolute terms and relative to income, especially in growth centres, where housing is more expensive and subject to greater pressures from demand than elsewhere.
Household indebtedness contributing to corporate loan losses
When indebted households cut their spending during an economic downturn, this also increase the financial difficulties of non-financial corporations.
Risks in long-term and large home loans – Sweden's worry is also ours
Households in both Finland and Sweden are carrying a record level of debt relative to their income.
High housing debt increases risks to financial stability
In Finland, the volume of housing loans is large compared with other bank lending and the capital requirements on the banks. Vulnerability is further increased by the relative size of household debt and the tendency for assets to be held in housing.
Nordic financial sector vulnerable to housing market risks
Realisation of potential housing market risks would simultaneously increase loan and investment losses while also pushing up the price of funding.
Low interest rates place a strain on the banks
In Finland, banks’ most important source of earnings, the interest margin, is now under pressure from a number of directions.
One country, many housing markets
Housing debt is concentrated in the Helsinki metropolitan area and other growth centres, where housing is more expensive. A large proportion of loans is borne by a small proportion of households.
Household debt – how much is too much?
A larger average loan size and longer loan repayment periods have permanently increased household vulnerability. In recent years, debt developments have levelled off.
Regulation has a limited impact on margins
The impact of regulation on growth in loan margins has been exaggerated. The impact is strongest in high-risk loans.