Press release 28 November 2016

Warning issued by the European Systemic Risk Board to Finland and seven other EU countries

The European Systemic Risk Board (ESRB) has issued a warning to eight European Union Member States, including Finland, on medium-term vulnerabilities on the residential real estate markets. The ESRB is responsible for monitoring developments on the EU financial markets and, through its actions, preventing or mitigating risks threatening the stability of the system. The Board is mandated to issue warnings and recommendations.

The ESRB considers Finland’s main vulnerability to be the already high and increasing level of household indebtedness, and particularly the concentration of this debt on a small group of households. However, according to the Board, there are no signs of significant overvaluation in residential real estate prices.

According to the Board, the vulnerabilities constitute a risk for the stability of the financial system and for the development of the real economy over the medium term. In addition, the Board is concerned about potential spillover effects across the Nordic countries and the Baltic region if the risks were to materialise.

The ESRB published its warning to Finland on Monday 28 November.

–I share the ESRB’s concern about the risks caused by high household indebtedness. Debt levels can best be addressed by restricting the loan amount relative to income. Such a restriction should be incorporated into legislation in Finland too, notes Anneli Tuominen, Director General of the Financial Supervisory Authority (FIN-FSA).

The FIN-FSA has monitored developments on the Finnish residential real estate and housing loan markets and has previously voiced concern about household debt. From an historical perspective, the indebtedness is at a high level relative to both income and GDP, exceeding the EU average.

Finnish authorities have previously decided on measures to mitigate these risks and are currently assessing the need for further action. The measures already taken include the entry into force in July 2016 of a loan cap linked to collateral, the gradual phasing-out of the right to mortgage interest tax deductions and the decision by the Board of the FIN-FSA to take measures to set a minimum level of 10% for the average risk weight on housing loans of banks that have adopted the Internal Ratings Based Approach.

In its warning, the ESRB notes the measures implemented in Finland, deeming them appropriate, but not necessarily sufficient to ward off all vulnerabilities. The ESRB also proposes that, for curbing the developments, it would be advisable for Finland to incorporate into its legislation new macroprudential tools linked to household income that would enable direct measures to address the sector’s indebtedness.

For further information, please contact

Jyri Helenius, Head of Department. tel. +358 10 831 5312