Macroprudential decision: Residential mortgage loan cap to be relaxed, countercyclical capital buffer rate remains unchanged at 0.0 percent

‘In the current exceptional situation caused by the corona pandemic, it is important to support the flow of credit to the real economy. Bringing the maximum loan-to-collateral (LTC) ratio back to the base level will support the proper functioning of the housing market,’ emphasises Marja Nykänen, Chair of the FIN-FSA Board.

The corona pandemic has had a significant impact on the real economy. The uncertain economic situation has led to a reduction in house sales and the volume of new residential mortgage loans granted to households. The housing market is showing no signs of overheating.

Bringing the maximum LTC ratio for residential mortgage loans other than first-home loans back to the standard level (90%) will support the housing market and the real economy in the current exceptional situation. Properly functioning housing markets facilitate house sales in the changing circumstances of households. Careful assessment of the borrower’s repayment capacity is particularly important when granting housing loans.

The high level of household indebtedness remains a key structural vulnerability in the financial system, and, in the longer term, attention should be paid to its management. Bringing the maximum LTC ratio back to the base level will support the economy in the current acute crisis.

At its extraordinary meeting on 6 April 2020, the FIN-FSA Board decided to relax the macroprudential buffer requirements on credit institutions. This decision will support the flow of credit to the real economy. There are no signs of changes in the development of the credit stock that would support the imposition of a CCyB requirement for banks and other credit institutions. The primary risk indicator for setting a CCyB requirement – the credit-to-GDP gap – has persisted at a low level.

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

Appendices

• 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, pdf)
• 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
• Macroprudential report 1/2020 (in Finnish)