The ability of Finnish households to service their housing loans remained good during January–March 2012. A higher income level and low interest rates decreased Nordea's housing affordability index in the last quarter despite a mild increase in house prices. The index's value is now 32.9 and is slightly lower than a year ago at 33.6. Repayment of housing loans is still being supported by the very low interest rate level.
The average interest rate on new mortgages fell by 0.2 percentage points during the reference period to 2.4 per cent. The housing index saw its biggest drop in Vantaa (-1.4 index points), and its biggest rise in Rovaniemi (+0.5 index points).
Housing loan repayment capacity was once again poorest in Helsinki (49.8) and strongest in Kotka (22.5). The monthly cost of a household's mortgage in Helsinki was now 894 euros, whereas a household in Kotka had monthly mortgage expenses of just 337 euros.
Nationwide house prices rose slightly in the first quarter of 2012. At the end of March, the average price of a mid-sized home was 168,653 euros. In Helsinki the price amounted to 289,382 euros, while the cheapest homes were in Kotka, costing 109,133 euros.
- Worries about Greece and Spain pushed interest rates down once again. In addition, fears of a new recession will keep interest rates low for the time being. But since the typical housing loan period is about 20 years, it is unlikely that borrowers will get to enjoy these record-low interest rates for the entire loan period, says Pasi Sorjonen, Nordea's Economist.
With that in mind, borrowers should avoid taking out a new mortgage to their maximum repayment capacity at the current interest rates, but instead leave some room for a rise in the rates during the loan period. In fact, Nordea is now using an interest rate of 6 per cent when making calculations for customers. At present, long-term interest rates are temptingly low, which means that it may be worthwhile to tie at least part of the loan to a 5 or 10-year rate.
- You should avoid excessive financial risks in your personal finances during good times and bad. But now, in the midst of extremely uncertain times, taking precautions against risks is even more important, says Private Economist Anu Numminen.
|Home price||Loan servicing cost||Index 1/2011||Index 4/2011||Index 1/2012||Change Q4-Q1|
In Nordea's housing affordability 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. In the examples above, the loan taken out to buy a home is 70 per cent of the purchase price 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, a household will spend 25% of its gross income on servicing its housing loan. The smaller the figure, the better a household's ability to service the housing loan needed for the average-priced home listed in the index.
For further information:
Anu Numminen, Private Economist, +358 9 165 88218
Pasi Sorjonen, Economist, +358 9 165 59942
Anni Kuusisto, Chief Press Officer, +358 9 165 42320