The number of housing loans drawn down in Finland last year fell from the previous year. Banks, however, are willing to grant loans, says Riikka Laine-Tolonen, Head of Segment Household and Marketing at Nordea Bank Finland.
Nordea's economists believe that the ability of households to buy homes is good. Interest rates on new housing loans are clearly below their normal level. Since 2005, home prices in Finland have increased at around the same rate as incomes on average, only slightly outpacing rents on non-government-funded housing. In the final quarter of 2012, the price rise evened out in the Greater Helsinki area, whereas elsewhere in the country home prices fell slightly. In Kuopio, Oulu and Turku, home prices have increased at a much slower rate than incomes.
|Average price of a housing unit of 76.8 square metres in different cities|
Households are cautious when it comes to major purchases. There were fewer new housing loans drawn down in 2012 than in the previous year, growth in the housing loan stock slowed down somewhat and the number of concluded home sales dropped slightly.
- All of this reinforces our view that the Finnish housing market is healthy and does not seem to have any nasty surprises in store, says Pasi Sorjonen, Senior Analyst at Nordea.
- Our customers spend an average of 29 per cent of their net income on servicing their loans. The typical housing loan amounts to 85,000 euros over 17 years, says Riikka Laine-Tolonen, Head of Segment Household and Marketing at Nordea Bank Finland.
Affordable total interest rates
Nordea's economists do not expect any major changes in the housing market and anticipate that the ability of households to buy homes will remain good.
- Short-term market interest rates will, of course, gradually rise this year and next but interest rates on new housing loans will remain relatively low. Home prices are curbed by a lacklustre improvement in purchasing power and a slight decline in the employment rate, says Sorjonen.
- At less than 2 per cent, the total interest rate is still very affordable. Borrowers should, however, prepare for rising interest rates by saving or agreeing on an interest rate cap, says Laine-Tolonen.
A cap on loans?
Finns have traditionally repaid their housing loans scrupulously. Customers are advised to take out loans that they will be able to pay back with their family's current income. When applying for a loan, customers are also asked to evaluate their repayment ability should interest rates rise above the current level and to prepare for the unexpected.
- We believe that over-indebtedness must be prevented by other means than a loan cap. A rigid loan cap would not enable banks to assess people's different situations flexibly, says Riikka Laine-Tolonen.
A loan cap would primarily affect first-time buyers and would definitely result in a drop in the number of such buyers on the market, at least temporarily. A cap would also hamper labour mobility because there is a large gap between home prices in the Greater Helsinki area and the rest of Finland, for example.
Home saving on the rise
ASP accounts have regained their attractiveness as a form of saving to buy a home, although the system could be further developed.
- Parents and grandparents should be allowed to begin saving for their children and grandchildren after they are born. The saving period for an ASP account should be at least one year and freer deposits should be allowed, instead of the current quarterly deposits, says Riikka Laine-Tolonen.
Riikka Laine Tolonen, Head of Segment Household and Marketing, 050 343 0585
Pasi Sorjonen, Senior Analyst, 09 165 59942
Anni Kuusisto, Chief Press Officer, 09 165 42653