Proportion of own funds required for mortgages decreases

A significant change has recently taken place in the housing market, particularly concerning mortgage lending practices in Finland. The Financial Supervisory Authority (Finanssivalvonta) has raised the maximum loan-to-value ratio (LTV) for mortgages on non-first-time purchases to 95 percent. This means that banks can now offer loans covering up to 95 percent of a property's purchase price, even for buyers who already own homes. Previously, this limit was set at 90 percent for such cases. The decision aims to curb the downward trend in the housing market, which has been observed based on available statistical data.

The move comes after legislative changes enacted earlier this summer, which granted the Financial Supervisory Authority the authority to increase the maximum LTV ratio for non-first-time homebuyers by up to five percentage points. These adjustments are intended to provide temporary relief to the housing market, which has shown signs of stagnation over recent years. According to the authority, factors such as weak housing market development, geopolitical uncertainty, and subdued economic outlook support the need for this temporary easing of lending conditions. The supervisory board’s chairperson, Marja Nykänen, stated in a press release that they will assess the conditions for continuing the easing on a quarterly basis.

In addition to raising the LTV ratio, the Financial Supervisory Authority also decided to maintain the variable capital adequacy requirement at 0.0 percent for banks. This measure ensures that financial institutions remain stable while allowing more flexibility in mortgage lending. Furthermore, the requirements for other significant credit institutions were kept unchanged. The decision reflects a balance between supporting the housing market and maintaining the stability of the broader financial system.

The housing market in Finland has faced challenges in recent years, marked by declining demand and slower price growth. The Financial Supervisory Authority has noted that these trends have been exacerbated by external factors such as geopolitical tensions and uncertain economic forecasts. By increasing the LTV ratio, the authority hopes to stimulate activity in the housing sector by making it easier for existing homeowners to refinance or purchase additional properties without requiring a larger down payment. This could potentially lead to increased liquidity in the market and encourage more transactions.

Reactions to the new policy have varied among stakeholders. Some industry experts view the decision as a positive step toward stabilizing the housing market, arguing that higher loan availability can help address the current stagnation. Others caution that while the move provides immediate relief, long-term solutions are still needed to ensure sustainable growth in the housing sector. Real estate agents and developers have expressed cautious optimism, noting that the change might lead to a modest uptick in buyer interest, especially among those looking to upgrade their homes.

Looking ahead, the Financial Supervisory Authority plans to review the effectiveness of the policy on a quarterly basis. This approach allows for flexibility in adjusting measures depending on how the housing market evolves. If the market shows signs of improvement, the authority may consider further adjustments or even revert to previous limits. Conversely, if the situation worsens, additional measures could be introduced to provide further support. The focus remains on ensuring that the housing market remains resilient while avoiding excessive risk-taking by financial institutions.