The Financial Supervisory Authority estimates that the mortgage loan cap introduced in July last year has proved ineffective. A loan cap implies that the home buyer must have savings or other security for 10 percent of the home’s value, and the loan is granted up to 90 percent of the home’s value. For first home buyers, the corresponding figures are 5% (savings or collateral) and 95% (loan).
Loan ceiling has been designed to curb household over-indebtedness
The loan ceiling has been designed to curb household over-indebtedness and encourage savings before taking out a mortgage. However, the Financial Supervisory Authority criticizes the inefficiency of the loan ceiling as households circumvent it by taking out consumer credit to fill in the missing own savings. Nor does a loan ceiling like this one present the best way to curb excessive borrowing or house price increases.
Fiva is currently studying the need for changes in loan ceiling regulations. However, the process is still at an early stage and no concrete proposals for changes to the ceiling have been put forward.
Positive Credit Solution?
Good Finance Mortgage Bank, proposed a positive credit register involving all lenders to circumvent the loan ceiling. A positive register would show all the borrower’s loans, principal and income, in addition to the default entries. At present, only the so-called. negative credit history, which merely indicates whether a person has defaulted.
Bank Group, also believes that a positive credit register would be a solution to circumvent the loan ceiling. According to Pölönen, a positive credit register would also facilitate and speed up the loan process.
Positive credit registers are widely used in Europe and for example have been in use in Sweden for more than twenty years.
Banks’ risk weights will be tightened
The Financial Supervisory Authority has also announced its intention to tighten the risk weights for mortgages. The risk weight determines how much the bank must have in terms of own funds in relation to the loans granted. The previous plan was to lower the risk weight to 10% from the beginning of next year, but now Fiva plans to raise the lower limit to 15% for credit institutions that use their own internal models to calculate the solvency requirements for mortgages. Internal calculation models are used for example.
Finland’s economic situation is improving for the first time in ten years, and he therefore sees no need to tighten risk weights. According to Good finance, tightening of risk weights may eventually also be reflected in loan margins, meaning that in practice the costs of tightening are passed on to customers.