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Working group recommends limit on mortgage LTV ratios

In future the Financial Supervisory Authority should get powers to prohibit loans over a certain loan-to-value ratio, recommends a working group.

In practice, that means the FSA could in future ban banks from lending money to people without the required deposit. According to the current proposal, housing loans could be limited to 80 percent of the home’s value.

The FSA has already recommended that banks only grant mortgages for 90 percent of a home’s purchase price. Some banks have not, however, stuck to that guideline.

In addition to limiting the loan-to-value ratio, the FSA could also make additional capital requirements on banks if the economic situation demands it. Decisions of that nature would be made by the FSA board after consultations with the Ministry of Finance, the Ministry of Social Affairs and Health, and the Bank of Finland.

The legislation recommended by the working group under former president of Op Pohjola Group, Antti Tanskanen, is intended to strengthen solidity of the banking sector and reduce the economic cycle’s effect on banks’ stability.

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