Macroprudential decision: Housing loan cap restored to baseline level of 90% – banks’ countercyclical capital buffer requirement remains unchanged

The FIN-FSA Board restores non-first home buyers’ housing loan cap, i.e. the maximum loan-to-collateral ratio, to its baseline level, which means that the allowed maximum amount for a housing loan is 90% of the current value of collateral posted at loan approval. The decision enters into force immediately. The maximum LTC ratio was lowered by five percentage points in summer 2021 to contain risks related to the accumulation of household debt. In addition, the Board decided to keep the countercyclical capital requirement for banks at its baseline level and continue the application of the risk weight floor imposed by the Swedish financial supervisor to Finnish credit institutions.

The development of the world economy has been modest this year, and the growth prospects remain sluggish. According to Eurosystem staff projections, tight financing conditions, low consumer confidence and weak export developments are dampening growth in the euro area this year. Changes in the cost of financing have affected all sectors of the economy, including the real estate sector. According to the Bank of Finland’s December 2023 forecast, Finland’s economy will contract by 0.5% in 2023 as the weak second year-half drags the whole year down into negative territory. Next year, the economy is forecast to contract by a further 0.2%.

Housing loan cap returns to its baseline level

The downturn of the housing markets, which began in the second half of 2022, continued throughout summer and autumn 2023, but house sales in November picked up year on year . The number of sales of old dwellings in July–November was a good one-fifth lower, and the euro amount of new housing loans in July–October almost a one-third lower than in 2015–2019 on average. The decline of the prices of old dwellings in housing companies continued in the third quarter of 2023 and in October.

According to updated statistics, household indebtedness relative to income peaked at the end of 2021. Since then, indebtedness has declined due to sluggish credit demand, contraction of the housing loan stock and faster growth of households’ nominal income. Indebtedness is expected to decrease further next year.

- The decrease in household indebtedness has reduced financial system vulnerabilities. In addition, the FIN-FSA Board's recommendation on a maximum debt-servicing burden, which entered into force at the beginning of 2023, helps contain risks related to the accumulation of debt. As a result, the housing loan cap can be restored to its baseline level, states Marja Nykänen, Chair of the Board.

Banks’ countercyclical capital buffer requirement to remain unchanged

Except for the current account deficit and the growth of the debt-servicing burden, indicators of the financial cycle continue to point to a downward financial cycle. The primary risk indicator, the credit-to-GDP gap, stood at approximately -15 percentage points at the end of June, based on preliminary data. According to an overall assessment based on risk indicators, there are no grounds to apply a countercyclical capital buffer, and hence it is kept at the baseline level (0.0%).

Application of risk weight floors imposed by the Swedish financial supervisor continues

At the beginning of December 2023, the Swedish financial supervisor (Finansinspektionen) decided on a two-year extension to the validity of the 25% risk weight floor on Swedish housing loans applied in IRB credit risk models, and it notified EU authorities of this decision. The FIN-FSA Board decided to continue to apply the floor to credit institutions authorised in Finland in 2024–25.

The Board of the Financial Supervisory Authority assesses on a quarterly basis the short- and long-term risks to the stability of Finland’s financial system. If necessary, the Board may tighten or relax its macroprudential instruments to promote stability. The Board decides on a quarterly basis the levels of the countercyclical capital buffer (CCyB) and the maximum loan-to-collateral (LTC) ratio for housing loans. The levels of the additional capital requirements for nationally systemically important institutions (O-SII buffers) are reviewed at least annually and the level of the systemic risk buffer (SyRB) at least every second year.

For further information, please contact:

Samu Kurri, Head of Department. Requests for interviews are coordinated by FIN-FSA Communications, tel. +358 9 183 5030, Mon–Fri 9:00–16:00.

View this link to access the appendices listed below

Board’s decision on the application of macroprudential instruments (pdf)
Proposal of the Director General of the FIN-FSA, circulated for comment, on the application of macroprudential instruments (pdf, in Finnish)
Opinions on the Director General’s proposal on the application of macroprudential instruments (pdf, in Finnish)
- Bank of Finland
- Ministry of Finance
- Ministry of Social Affairs and Health
Macroprudential report 2/2023 (in Finnish)