Over recent decades, Finnish households have constantly accumulated debt in relation to their income. The household DTI ratio is projected to stabilise in the immediate years ahead as the growth in the housing loan stock abates.
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The rapid rise in house prices has increased the risks on the housing markets of the other Nordic countries. The risks from Sweden’s housing market and growing household debt can very easily spread to Finland.
Based on a stress test conducted jointly by the Bank of Finland and the Financial supervisory Authority, Finnish banks are well placed to weather a serious crisis on the Nordic housing markets.
Based on an analysis by the Bank of Finland, the introduction of a debt-to-income cap would have only a moderate impact on long-term economic growth. A debt-to-income cap could dampen economic fluctuations when compared with the current loan-to-value cap.
The Bank of Finland and Financial Supervisory Authority’s new stress-testing framework can be used to assess the ability of Finnish banks to cope in severe domestic or Nordic economic crises.