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FSA: Homebuyers must put down bigger deposits

First-time home buyers will still be able to buy with only five percent downpayments, but others must put up at least 15 percent.

Asuntonäyttö.
The real estate market remains moderate, says an OP banker. Image: Jyrki Lyytikkä / Yle

Expressing concern about Finnish households’ indebtedness, the Finnish Financial Supervisory Authority (FIN-FSA) is tightening the screws on housing loans.

FIN-FSA said on Monday that it will lower the cap on the share of a home’s purchase price that can be covered by a loan, from 90 to 85 percent. The new cap will take effect at the beginning of July. For first-time home buyers, the cap will remain at 95 percent, meaning they will still be able to buy with only five percent deposits.

“The loosening of criteria for granting consumer credits, shortcomings in regulatory compliance and the continuous rise in household indebtedness over the past two decades constitute an alarming combination. Supervision of consumer credits is therefore one of the FIN-FSA’s priorities for the current year,” FIN-FSA’s Director General Anneli Tuominen said in a statement.

Rehn: Avoid sunny-day mistakes

Former European Commissioner Olli Rehn, who now chairs the FIN-FSA’s board along with a Bank of Finland board membership, told Yle that worries over indebtedness are well founded.

"It has expanded for about 20 years, and appears to be still growing. It’s better to intervene in this problem in time. It’s wiser to avoid the kinds of mistakes that are generally made during good times," he says.

The industry lobby Finance Finland (FFI) opposes the move. The FFI says it fears that the new restriction on the size of housing mortgages will limit households’ opportunities to move in pursuit of work and thus undermine the prerequisites for economic growth.

Some bankers downplay the impact of the measure, though.

"I don’t believe that this will do very much to dampen demand for housing loans or the development in housing prices,” says Jouko Pölönen, banking director at the OP Group. ”The rise in home prices has been very modest, as has the number of housing loans," he adds.

Tom Miller, CEO of Nordea Mortgage Bank, agrees that the impact will be muted.

"It might increase demand between now and the beginning of July, and then maybe slow it down in August and September," he says.

EDIT: The headline of this story originally read 'FSA: Homebuyers must pay more cash on the barrelhead'. Two references to 'collateral' were changed, as the story focuses on down-payments on home purchases where the purchaser borrows money to fund the purchase. In such transactions the 'collateral' is usually the home itself, which typically covers the majority of the purchase price and is forfeited if the borrower defaults on their home loans.

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