Finns deeper in debt than ever before

print this

Finns are increasingly living on debt. The amount of debt compared with earned income exceeded 100 per cent last year. This means that Finns owe more on average than what they earn in annual income.
      While not nearly all Finns owe money, more than half of Finnish households do have outstanding debts. This is ten per cent more than was the case in the first half of this decade.
      The level of debt owed by households which had borrowed money is an average 144 per cent of annual income. The most indebted are those aged 25 to 34, but the 35 to 44 age group is also familiar with the experience of owing money.
     
Home loans account for the major proportion of Finnish debt. Housing loans accounted for 71 per cent of all debts in 2006. From the beginning of the decade, the amount of money owed on housing loans has doubled, and the number of holders of home loans has grown by one fifth.
      The growth in the number of Finns with paying off home loans in the present decade is attributable to the increase in long-term loans, low interest rates, and competition among banks for new clients. Loans have been available without prior savings, and they have been granted for longer periods of time - up to more than 30 years.
      The greater availability of work in what was until recently a steadily rising economy, has also encouraged Finns to buy homes instead of living on rent.
     
Attitudes toward borrowing have also changed.
      “Finland has traditionally had a very conservative debt culture. The thinking has been that debts should be paid off right away. The thinking has partly changed, but so has the loan market”, says Bank of Finland economist Risto Herrala.
      One indication of the change in attitudes is that more people than before have bought their own homes even if they have not had any savings of their own. Nor is it any longer the case that people will start with a one-room apartment and work up from there. Nowadays, people will go directly for the family home of their dreams.
      The amount of debt owed by those paying off their housing loans is approaching 200 per cent of income. One fifth of people have owed three times their income in 2006.
      The youngest bear the heaviest debt burden. More than half of Finnish debtors under the age of 25 owe three times their income, and one in five have five times their annual income in debt.
     
One reason for the massive housing debt is that prices of houses and apartments have risen much more than income. But Finns have other debt as well: people will borrow money to buy a summer cottage or a car, to finance their studies, and for daily consumption.
      In 2006 more than one million households had taken out consumer loans of an average EUR 17,000. The number of consumption loans, and borrowers had grown significantly from the beginning of the decade.
      However, Risto Herrala of the Bank of Finland says that few Finns are in over their heads.
      “Households are in a relatively good position, and even though indebtedness has grown, so has income. Debt servicing costs have remained under control, and as many have a long term loan, the average burden placed on the borrower is reasonable. What happens next depends on how the real economy develops”, Herrala says.
     
Households do not seem to be too worried about a shift of the financial crisis into the real economy. According to the Bank of Finland, households took out new housing loans in September at a slightly higher rate than in August. The total was EUR 1.7 billion.


Previously in HS International Edition:
  Bank crisis makes Finns nervous (10.10.2008)

Helsingin Sanomat