Macroprudential decision: No changes to macroprudential instruments – both the housing loan cap and countercyclical capital buffer requirement for banks to remain unchanged

Press release 18 December 2024

Macroprudential decision: No changes to macroprudential instruments – both the housing loan cap and countercyclical capital buffer requirement for banks to remain unchanged

At its meeting on 17 December 2024, the FIN-FSA Board 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 also remain at zero.

The growth of the world economy has strengthened somewhat this year, but economic developments in the euro area have remained sluggish. Inflation in the euro area decelerated clearly, and the European Central Bank has continued to reduce its policy rates. The Finnish economy has performed weakly during the year, and according to the Bank of Finland forecast, growth will recover gradually during the immediate years ahead. However, the risks associated with weaker than anticipated growth are elevated, due to the high level of uncertainty in the international and national economy.

Housing loan cap still at its standard level

The housing market is anticipated to recover moderately if market and loan interest continue to decline in line with expectations and the Finnish economy recovers as forecast. In the following years, debt-servicing by households is expected to become easier as purchasing power improves and employment increases, which would also support the recovery of the housing market. However, the short-term outlook for the housing market continues to involve uncertainty.

– Vulnerabilities associated with mortgage lending have eased as households have drawn down fewer and smaller loans than before. Total household debt has decreased in recent years relative to income, and households’ debt-servicing ability has remained mostly sufficient, states Marja Nykänen, Chair of the Board.

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

CCyB requirement for banks will remain at 0.0%

Based on indicators of private sector indebtedness and development of the credit stock, the financial cycle remains subdued. While the contraction of lending seems to have come to a halt, so far there have been no signs of a strong upturn of the cyclical situation. 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 (-16.5 percentage points) at the end of June 2024. The growth of the stock of credit to non-financial corporations practically stood still in the summer and autumn, but surveys suggest that the demand for corporate credit is picking up. The housing corporations’ credit stock has continued to grow slowly.

Supplementary risk indicators do not point to any significant increase in the cyclical stability risks associated with total lending, either. The stress index for domestic financial markets edged up in early autumn 2024 reflecting a sudden and short-lived international market tumult, but it has remained at a low level throughout the autumn. The current account deficit has continued to contract. An overall assessment based on the risk indicators used does not support the application of a countercyclical capital buffer requirement.

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

• Macroprudential report 2/2024 (in Finnish)