Macroprudential decision: Loan cap remains unchanged

The Board of the Financial Supervisory Authority (FIN-FSA) has decided to keep the loan cap, i.e. the maximum loan-to-collateral (LTC) ratio, unchanged. The loan cap was adjusted last year by lowering the maximum LTC ratio for new residential mortgage loans other than first-home loans by 5 percentage points, to 85%. The Board has also decided to keep the countercyclical capital buffer (CCyB) requirement for banks at its standard level.

Economic forecasts suggest that Finnish growth will slow this year and the next. Due to the adverse geopolitical situation, forecasts are surrounded by high uncertainty, and there is a chance that economic activity will fall short of expectations. Risks may materialise if the war in Ukraine escalates further, global economic growth slows more sharply than estimated, financing conditions tighten more than projected or disruptions in energy availability become more severe.

Loan cap remains unchanged

House sales and mortgage lending have moderated in the early part of 2022 from a year earlier. Weaker economic prospects, tightening financing conditions and increased uncertainty are fuelling the risk of housing market activity falling from recent levels. Consumer confidence in the economy is historically low, and fewer people consider the time favourable for taking out a loan. Increases in consumer prices will drive up household spending on essentials, while increases in market interest rates will do the same for loan-servicing costs.

Higher consumption spending and loan-servicing costs may put a strain on the finances of households, particularly for those that are heavily indebted relative to their income, and hamper their ability to maintain their level of consumption.

“With tightening financing conditions and a weakening economic environment, it is important to ensure that new mortgage borrowers have sufficient financial buffers against higher loan-service burdens and lower collateral values,” says Marja Nykänen, Chair of the FIN-FSA Board.

The FIN-FSA Board’s decision of June 2021 concerning the LTC ratio, taken to curb the number of large housing loans in relation to collateral, remains justified. The recommendation on mortgage borrowers’ debt-servicing burden, taken in June 2022 and effective from the beginning of 2023, also serves to safeguard households’ capacity to service their loans and maintain consumption under stressed conditions. More details on the implementation of the recommendation, which has now been revised, are provided on the FIN-FSA website.

Banks’ countercyclical capital buffer requirement remains at standard level

The revised set of risk indicators guiding CCyB decisions and adopted this quarter is not pointing to overheating in the Finnish financial cycle. The primary risk indicator – the private sector credit-to-GDP gap – continues to post very low figures. The indicators supplementing the primary risk indicator are not signalling an increase in cyclical risks, either. Hence, there is no need to raise the CCyB rate from its current standard level of 0%.

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 the macroprudential instruments, which promote 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 the additional capital requirements for nationally systemically important institutions (O-SII buffers) are reviewed at least annually and the level of the systemic risk (SyRB) buffer 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

Board’s decision on the application of macroprudential instruments (pdf)
Proposal of the Director General of the FIN-FSA* on the application of macroprudential instruments (pdf, in Finnish)
Opinions on 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
Revised recommendation of the financial supervisory authority on a maximum debt-servicing burden for housing loan applicants’ loans and housing company-related charges for financial costs (pdf)
Questions and answers - Revised recommendation (pdf, in Finnish)

About Finanssivalvonta

Finanssivalvonta, or the Financial Supervisory Authority (FIN-FSA), is the authority for supervision of Finland’s financial and insurance sectors. The entities supervised by the authority include banks, insurance and pension companies as well as other companies operating in the insurance sector, investment firms, fund management companies and the Helsinki Stock Exchange. We foster financial stability and confidence in the financial markets and enhance protection for customers, investors and the insured.

* Name of appendix revised on 29 September at 12:50, removed the words "circulated for comment".