Growth in housing loans decreases slightly; Finns still taking on more debt

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The eagerness of Finns to take out housing loans continues to grow, even though the growth rate has eased slightly. According to advance information put out by the Bank of Finland in November, the number of home loans had increased by 14.2 percent over the previous year.
      However, the rate of growth had declined by just under three percentage points from a year earlier.
      A comparison of each consecutive month with the same month in the previous year reveals that the growth rate had gone down more or less steadily during the full twelve months.
      "There are signs of a slight slowdown; even though the rate of growth is decreasing, it is not coming to a stop", says Sami Kurri of the Bank of Finland.
     
The rate of growth has been brought down slightly by the rise in interest rates, which has continued since the summer of 2005. The 12-month euribor rate rose to more than four per cent on the last day of the year, and the prime rates used as reference rates by several banks rose in the autumn. The Bank of Finland reports that the average interest rate of new loans has risen to 4.08 percent.
      "When the 12-month euribor rates rose already before the interest hikes of the European Central Bank (ECB), people started in increasing numbers to take out loans linked with the prime rate, in which the ECB rate hike is seen with a delay. Now that the prime rate has also followed the rate hike of the ECB, it is impossible to avoid higher interest rates. Now that the interest rates of housing loans that have already been taken out are rising, one can assume that the growth in the number of housing loans will fall away somewhat", Kurri says.
     
In spite of a small decline, the growth rate of more than 14 per cent is still considerable. It means that Finns are constantly taking on more debt. New housing loan contracts were signed worth EUR 2.7 billion in November, and 1.8 billion in home loan money was withdrawn in the same month.
      According to a study by the Finnish Bankers' Association conducted in the autumn, one third of Finns of legal age - 1.2 million people - had outstanding debt. The average amount is EUR 58,200.
      However, the amount of borrowing is not equally distributed. The greatest amount of debt is with Finns aged 25 to 34, and the largest loans, about EUR 82,000 per person, are held by families with children under school age.
      "Young families today want a permanent home when the children are small, and not when they have left home", says Ari Panula, deputy CEO of the Mortgage Society of Finland.
      As economic forecasts for this year are good, and as the faith that people hold in their own finances remains strong, Kurri expects further increases in borrowing in Finland.
      "Nothing dramatic is taking place on the market in interest rate expectations. If these forecasts come to pass, and if things continue to go well in the economy, housing prices will maintain their upward movement, because the number of new homes on offer is small", Kurri says.


Previously in HS International Edition:
  Nordea survey: Finnish households have weak risk tolerance (5.10.2006)

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