Macroprudential decision: Housing loan cap and capital buffer requirements for banks remain unchanged

Press release 27 June 2024

Macroprudential decision: Housing loan cap and capital buffer requirements for banks remain unchanged

The Board of the Financial Supervisory Authority (FIN-FSA) has decided to keep the loan cap at its standard level (95% for first-home loans and 90% for residential mortgage loans other than first-home loans). Additionally, the Board decided to maintain the countercyclical capital buffer (CCyB) requirement for banks at 0.0%. The additional capital requirements for other systemically important institutions (O-SIIs) will also remain unchanged.

The global economy has shown early signs of a pick-up during the spring. The US economy has continued to grow. The economic situation in the euro area is still fairly subdued, and inflation has also slowed. The outlook for the Finnish economy remains weak. According to the Bank of Finland's June forecast, the Finnish economy is in recession and GDP in 2024 will be down year on year by a total of 0.5%. The economy is expected to gradually bounce back from the recession in the second half of the year.

Housing loan cap remains at its statutory standard level

The housing market shows no signs of any significant pick-up in the demand for housing or for housing loans in the near term. Consumer confidence in the economy remained weak in May, and consumers considered it an unfavourable time to take out a loan. The expected gradual decline in interest rates and the growth in household purchasing power will support a moderate recovery in the housing market and in borrowing as 2024 wears on.

In December 2023, the Board of the FIN-FSA decided to restore the loan cap, i.e. the maximum loan-to-collateral (LTC) ratio, for residential mortgage loans other than first-home loans to its standard level of 90%, and in June 2024 the Board decided to keep the loan cap at this level. The loan cap for first-home loans will also remain unchanged at its standard level of 95%. This limits the maximum amount of a first-home loan to 95% – and for other than first-home loans to 90% – of the fair value of the collateral at the time the loan is granted.

The FIN-FSA’s recommendation on a stressed debt-service-to-income (DSTI) ratio for housing loan applicants took effect at the beginning of 2023. According to the recommendation, no more than 60% of a household's net income should be spent on loan servicing in a scenario in which loan interest rates rise to 6%. The FIN-FSA has now examined the extent to which credit institutions have followed this recommendation.
“In 2023, when the recommendation took effect, the proportion of mortgages with high loan servicing costs fell markedly. Our findings show that, overall, credit institutions have also complied well with our recommendation on the calculation of housing affordability,” says Marja Nykänen, Chair of the FIN-FSA Board.

Banks’ capital buffer requirements remain unchanged

Indicators measuring private sector indebtedness and changes in credit stock show that the financial cycle is still at a weak point. The primary risk indicator for setting the countercyclical capital buffer (CCyB) requirement – the deviation of the private sector credit-to-GDP ratio from its long-term trend, or the credit-to-GDP gap – turned slightly upward at the end of March 2024 but was still clearly negative (-15.7 percentage points). As supplementary risk indicators do not point to a significant increase in the stability risks associated with total lending either, the FIN-FSA Board decided to keep the countercyclical capital buffer requirement at its standard level (0.0%).

The FIN-FSA has also reviewed, in the manner required by law, the additional capital requirements set on 27 June 2022 for other systemically important institutions (O-SIIs). As the review did not reveal any reason to change these capital requirements, the requirements will remain unchanged as follows:

• Nordea Bank Plc                          2.5%
• OP Financial Group Plc               1.5%
• Municipality Finance Plc            0.5%

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) requirement 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)
• The FIN-FSA Board’s decision on the additional capital requirements for other systemically important institutions (PDF)
• Proposal of the Director General of the FIN-FSA, circulated for comment, on the application of macroprudential instruments (PDF, in Finnish)
• Proposal of the Director General of the FIN-FSA, circulated for comment, on the additional capital requirements for other systemically important institutions (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
• Opinions concerning the Director General’s proposal on the additional capital requirements for other systemically important institutions (PDF, in Finnish)
  • Bank of Finland
  • Ministry of Finance
  • Ministry of Social Affairs and Health
• Principles for identifying other systemically important credit institutions (O-SIIs) and setting additional capital requirements (PDF)
• Macroprudential report 1/2024 (in Finnish)