Finns have consumed at levels above their incomes, accumulating more debt than new wealth. Household saving is nevertheless similar to that of the other Nordic countries.

The macroprudential toolkit needs to be replenished with borrower-based instruments that take into account loan applicants’ repayment ability and are able to curtail household indebtedness as a whole.

Low risk premia and high valuations have increased global securities markets’ exposure to price corrections and abrupt shifts in risk premia.

Lowering the loan cap will mitigate household indebtedness and strengthen mortgage borrowers’ risk resilience. It will not, however, remove the risks relating to the record-high level of 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.

When indebted households cut their spending during an economic downturn, this also increase the financial difficulties of non-financial corporations.

The aim of the loan cap is to rein in household indebtedness and prevent housing price bubbles. Finland badly needs other instruments that can also restrict indebtedness.

The risks relating to high household indebtedness are realised when indebted households respond to the threat of payment difficulties by sharply reducing their consumption.