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

Press release 1 October 2024

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

The FIN-FSA Board has decided to keep the loan cap at its standard level of 95% for first-home loans and 90% for other new housing loans. The countercyclical capital buffer (CCyB) requirement for banks will remain at zero. In addition, the Board decided to approve the application of the Danish sector-specific systemic risk buffer requirement to Finnish credit institutions’ real estate company exposures in Denmark.

Many economies globally and in the euro area have shown signs of a recovery during the early part of the year. The Finnish economy saw mild growth in the first half of 2024, but the short-term cyclical outlook remains sluggish. The Bank of Finland's September interim forecast anticipates a pick-up in the economy next year.

Housing loan cap remains at its standard level

The housing and mortgage markets remain sluggish, but the downward trend has shown signs of levelling off. Housing sales and new mortgage lending lagged behind last year's levels in the first year-half, but housing sales increased in July–August. The housing markets are expected to pick up gradually over the course of 2025.

Household indebtedness has declined from the first quarter of 2022 in particular as new mortgage borrowing has decreased and disposable nominal income has grown. This has alleviated vulnerabilities related to mortgage lending and household indebtedness.

According to the FIN-FSA’s assessment, there have been no such significant changes in the macrostability environment that would require readjustment of the loan cap, i.e. the maximum LTC ratio, from its standard level, which is 95% for loans related to the purchase of a person’s first home and 90% for other new housing loans.

Countercyclical capital buffer (CCyB) requirement remains at 0.0%

In light of indicators of private sector indebtedness and development of the credit stock, the financial cycle is sluggish, but the contraction of lending appears to be ending. 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 – remained clearly negative at the end of June 2024 (-16.5 percentage points).

Supplementary risk indicators do not point to any significant increase in the cyclical stability risks associated with total lending, either. Therefore, according to an overall assessment based on risk indicators, there are no grounds to apply a countercyclical capital buffer, and hence it remains at 0.0%.

Danish systemic risk buffer to also apply in Finland

In October 2023, the Danish Ministry for Business, Industry and Financial Affairs (Erhvervsministeriet) which is the macroprudential authority for Denmark, adopted a preliminary decision to activate a sectoral systemic risk buffer (sSyRB) requirement at a rate of 7.0% for specifically defined exposures to Danish real estate companies. On 5 January 2024, the European Commission approved the requirement in accordance with favourable opinions of the European Systemic Risk Board (ESRB) and the European Banking Authority (EBA).

On 26 April 2024, the Ministry for Business, Industry and Financial Affairs of Denmark respecified and confirmed its decision. The Ministry requested the authorities of other EEA member states to apply the sSyRB requirement to relevant exposures located in Denmark of credit institutions in their jurisdiction, and also requested the ESRB to recommend the measure. The Danish Ministry for Business, Industry and Financial Affairs justifies the activation of the sSyRB, in particular, by the size of the real estate company sector, risks of the sector’s entities that threaten financial stability, and the interconnectedness of the entities with other financial market participants.

The FIN-FSA Board adopted the Danish requirement for Finnish credit institutions from 1 January 2025. – The decision supports the smooth operation of the internal market of the European Economic Area and promotes a level playing field for Nordic banks, says Marja Nykänen, Chair of the Board.

Due to the overlap between risks covered by the Danish sector-specific systemic risk buffer and the Finnish national systemic risk buffer requirement, in accordance with the law, Finnish credit institutions must meet the higher of the two requirements. The requirement is applicable to both conglomerates and individual credit institutions whose relevant exposures in Denmark exceed EUR 200 million.

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