Housing loans approaching risk limits in many Finnish households

print this

According to a household credit survey conducted by the Financial Supervision Authority (FIN-FSA) in autumn 2008, some Finnish households have an alarmingly high burden of debt.
     
The findings of the survey that was published on Wednesday indicate that some 18% of households with mortgages use more than half of their net income for debt servicing, in other words for interests and amortisations.
      Jukka Vesala, the Deputy Director General of FIN-FSA, said on Wednesday that he was surprised to learn that one in five Finnish households with home loans have such an alarmingly high burden of debt.
      At the same time, the large mortgages amounting to EUR 150,000 to 200,000 can be found most commonly among young households consisting of people aged 25 to 35 years, while the yet heftier loans of EUR 200,000 to 400,000 are in the hands of middle-aged citizens aged 36 to 50.
     
One of the reasons for the growth in the amounts of individual loans is the simple fact that the prices of homes have gone up. Vesala pointed out that at the same time, loan maturities have also become longer, with over half of the housing loans running for more than 21 years.
      ”Such a situation does not leave much leeway for making adjustments to the housing loan”, noted Vesala.
      Although having increased recently, the amount and proportion of unserviced loans still remains fairly low.
      According to FIN-FSA, there has, nevertheless, been a turn for the worse. Hence payment defaults are expected to increase.
     
In proportion to the overall housing loan stock, the amount of unserviced loans continues to be very low, even when compared with the recession at the beginning of the 1990s.
      In Vesala’s view, the fact that some of the banks have tightened their loan granting criteria is a sign of the current financial market crisis.
      On the other hand, the volumes of debts have kept growing thanks to the extending of the terms of loans.
     
Director General Anneli Tuominen of FIN-FSA believes that despite the acute financial market crisis, the Finnish banks are well-positioned, even though the banks’ profitability turned downwards last year.
      FIN-FSA’s recent stress analysis indicates that the Finnish banks would be capable of withstanding even a steep economic slump, even though some of them could sustain losses.
      Tuominen was unwilling to mention the names nor even the number of such banks.
      The starting points for most recent calculations have been the shrinking of the national economy by 3%, the drop in short-term interest rates, as well as a sharp decline in premium revenues and share prices.
      ”It is to be expected that the growth in lending could decline further while the interests are reduced”, Tuominen estimated.


Previously in HS International Edition:
  Finns deeper in debt than ever before (3.11.2008)

Links:
  Financial Supervision Authority (FIN-FSA) press release 3.12.2008: Alarmingly high burden of debt in some of the households
  Financial Supervision Authority (FIN-FSA) analysis 23.9.2008: Financial market crisis expected to have indirect implications for Finnish banks, too

Helsingin Sanomat