The ability of Finnish households to service their housing loans remained good during October - December 2011. The slight drop in home prices and the higher income level decreased the index in the last quarter. The index value is now 33.8, which is slightly higher than 32.7 a year ago. Repayment of housing loans is being supported by the continued very low interest rate level.
During the review period, the average interest on new housing loans remained unchanged at 2.6 per cent. The index dropped the most in Vaasa and Seinäjoki. In late 2011, the index value only rose in Kajaani and Kuopio.
Housing loan servicing ability was once again the poorest in Helsinki (50.6) and the best in Kotka (22.4). The average monthly housing loan payment of a Helsinki household is now 899 euros, while a household in Kotka only pays 332 euros per month.
Home prices fell slightly throughout Finland in October - December. At the end of 2011, the average price of a mid-sized home was 166,042 euros. In Helsinki the average price amounted to 282,778 euros, while the cheapest homes were in Kotka, costing 104,294 euros.
- With the prolonged debt crisis, fears of a new recession will keep interest rates low for the time being. As the typical housing loan period is, however, about 20 years, it is likely that borrowers will not get to enjoy interest rates this low for the entire loan period, says Pasi Sorjonen, Nordea's economist.
At the prevailing interest rate level, a new housing loan should be well below the maximum limit of your repayment capacity, but be prepared for a rise in the rates during the loan period. Nordea is now using an interest rate of 6 per cent when making calculations for customers.
- If you have a fair amount of housing loan proportioned to your income and the loan period is long, as people just having bought their first home or built a house typically do, it is still a sensible idea to hedge against rising rates. At present, the long rates are temptingly low, which means that it might pay off to tie at least part of the loan to a 5 or 10-year rate. One means to acquire protection is an interest rate cap, says Nordea's Private Economist Anu Numminen.
|Home price||Monthly loan servicing cost||Index 4/2010||Index 3/2011||Index 4/2011||Change Q3-Q4|
In the index housing loan servicing costs are calculated for a surface area of 76.8 square metres, which is the average size of a Finnish home according to Statistics Finland. The loan taken out to purchase a home is 70 per cent of the purchase and the loan period is 25 years.
The basis for the index is that loan servicing costs, excluding tax deductions, should not exceed 25 per cent of a household’s gross income. If the index is 100, the household spends 25 per cent of its gross income on housing loan servicing. The smaller the figure, the better the household's ability to service the housing loan needed for the example in the index.
Anu Numminen, Private Economist, +358 9 165 88218
Pasi Sorjonen, Economist +358 9 165 59942
Anni Kuusisto, Press Officer, +358 9 165 42653