Macroprudential decision: FIN-FSA will not tighten macroprudential requirements but will closely monitor mortgage lending


The Financial Supervisory Authority (FIN-FSA) is closely monitoring the housing market and household indebtedness and urges banks to take particular care when assessing borrowers’ ability to pay, especially in the case of large and long-term loans. For now, the maximum loan-to-collateral (LTC) ratio, i.e. the loan cap, and banks’ capital requirements will remain unchanged.

The second wave of the COVID-19 pandemic has slowed economic growth and is prolonging uncertainty. However, towards the end of 2020 house sales and mortgage lending picked up and at the same time household debt relative to disposable income grew further.

‘In this situation, the FIN-FSA Board is paying particular attention to recent developments in mortgage lending and is closely monitoring activity on the housing market and household indebtedness. Based on these developments, the Board will assess the need to tighten the macroprudential requirements in the future in order to contain risks,’ says Marja Nykänen, Chair of the FIN-FSA Board.

Housing and mortgage lending markets busier in late 2020 than in previous years

The COVID-19 pandemic led to a contraction in GDP during 2020, particularly in the second quarter of the year. The economic recovery is expected to gain momentum in 2021, but the labour market will rebound more slowly.

Housing market activity has picked up since the summer and mortgage lending is growing at a faster pace than the economy. Finnish banks’ loss-absorbing capacity is good, but uncertainty surrounding economic developments and the amortization periods granted to borrowers are making it difficult to gain a clear picture of banks’ credit risks.

The year-on-year gap in housing sales volumes that arose in spring 2020 narrowed towards the end of the year, so that the annual levels of housing sales and new housing loans no longer differed significantly from a year earlier.

The FIN-FSA Board decided in June 2020 to restore the maximum LTC ratio for residential mortgage loans other than first-home loans to 90%. Since then, the share of mortgages with an LTC ratio of over 85% in the euro amount of housing loans other than first-home loans has risen to the level before the tightening of the loan cap in 2018. First-home loans with an LTC ratio exceeding 90% have become more common, currently accounting for almost a quarter of all new first-home loans.

Longer-than-usual housing loans continued to become more common, and the proportion of mortgages with a repayment period of over 26 years in new housing loans has increased. In the third quarter of 2020, household debt relative to disposable income reached a new record of 131%.

‘In the current situation, it is of prime importance that banks carefully assess borrowers’ ability to pay. Lenders are justified in exercising restraint in granting loans that are very large with regard to the borrowers’ income and have a longer than usual repayment period.

Countercyclical capital buffer requirement will not be imposed on banks and other credit institutions

Conditions on the credit market favour maintaining the countercyclical capital buffer (CCyB) requirement unchanged. The primary risk indicator (the private sector credit-to-GDP gap) has remained negative, and supplementary risk indicators also support the decision to keep the CCyB rate at its current level. Growth in banks’ corporate credit stock has been quite rapid during the pandemic, but slowed towards the end of 2020.

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 levels of the countercyclical capital buffer (CCyB) and the maximum loan-to-collateral (LTC) ratio for housing loans. The levels of the systemic risk buffer and the additional capital requirements for nationally systemically important institutions (O-SII buffers) are reviewed annually.

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, circulated for comment, on the application of macroprudential instruments (in Finnish)
  • Opinions on the Director General’s proposal on the application of macroprudential instruments (in Finnish, pdf)
    • Bank of Finland
    • Ministry of Finance
    • Ministry of Social Affairs and Health



For further information, please contact:
Marja Nykänen, Chair of the Board of the Financial Supervisory Authority, tel. +358 9 183 2007

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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.

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