Macroprudential decision: Housing loan cap and countercyclical capital buffer requirement for banks to remain unchanged
At its meeting on 24 March 2025, the FIN-FSA Board decided to keep the loan cap (maximum LTC ratio) at its standard level The analysis made did not indicate factors jeopardising financial stability in such a way that warrants tightening of the loan cap. The countercyclical capital buffer (CCyB) requirement for banks will also remain at zero.
The growth of the world economy strengthened in the course of 2024. However, growth continued to be driven by services, and the global slump of industrial production persists. Prospects for the euro area economy remain sluggish, and the cyclical outlook weakened further towards the end of the year. Uncertainties pertaining to geopolitics and international trade policy are overshadowing the growth outlook for the euro area. The Finnish economy resumed modest growth in the second half of 2024, but preliminary data point to a contraction of 0.1% in GDP for the whole year. However, domestic demand remained quite sluggish, and the labour market situation weakened significantly during the autumn. According to the Bank of Finland’s forecast, economic growth will nevertheless strengthen gradually over the following years, but downside risks have increased.
Housing loan cap remains at its standard level
The volumes of housing sales and new mortgage loans suggest that the housing markets have bottomed out. The latest data support the assessment that the cyclical situation has improved somewhat, and a gradual and tentative recovery is beginning. However, the short-term outlook for the housing market continues to involve uncertainty.
Risks to financial stability are expected to remain at a moderate level if the economy and housing markets recover in line with forecasts. The vulnerabilities are mitigated by the fact that households’ total leverage has decreased relative to income, and indebtedness is expected to increase less and remain more contained than during its peak years.
– However, the risks could escalate if the downturn of the housing markets persists further due to growing economic uncertainties, states Marja Nykänen, Chair of the Board.
Hence, according to the FIN-FSA’s assessment, there have been no such changes in the risk environment that would require readjustment of the loan cap (maximum LTC ratio) from its present standard level of 95% for loans related to the purchase of a person’s first home and 90% for other new housing loans.
CCyB requirement for banks will remain at 0.0%
There are still no clear signs of a turnaround in the financial cycle. The primary risk indicator – the deviation of the private sector credit-to-GDP ratio from its long-term trend, or the credit-to-GDP gap – narrowed slightly in the first and second quarter of 2024, before edging down a little, to stand at -16.8 percentage points in the third quarter.
The supplementary risk indicators do not point to a significant increase in the cyclical stability risks associated with total lending, either. Hence, an overall assessment based on the risk indicators used does not support the application of a countercyclical capital buffer requirement.
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 for promoting stability. The Board decides on a quarterly basis the level of the countercyclical capital buffer (CCyB) and the level of the maximum loan-to-collateral (LTC) ratio for housing loans. The levels of 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:
Marja Nykänen, Chair of the Board of the Financial Supervisory Authority, tel. +358 9 183 2007
View this link to access the appendices listed below
- The FIN-FSA 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 concerning 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
Contacts
- Media phone service number, +358 9 183 5030
About Finanssivalvonta
Finanssivalvonta, or the Financial Supervisory Authority (FIN-FSA), is the authority for supervision of Finland’s financial and insurance sectors. The entities supervised by the authority include banks, insurance and pension companies as well as other companies operating in the insurance sector, investment firms, fund management companies and the Helsinki Stock Exchange. We foster financial stability and confidence in the financial markets and enhance protection for customers, investors and the insured.