Public finances need more room for manoeuvre

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 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.

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.

Consumer credit can drive households into financial difficulties. New measures are needed to prevent increasing debt problems.

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.

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.

Investment in IT will improve banks’ long-term profitability, while weakening short-term profitability.