Central labour market organisations and FFI appeal for moderation in housing loan regulation – stricter loan conditions would especially affect young first-time buyers

Central Finnish labour market organisations SAK, Akava and STTK together with Finance Finland (FFI) appeal to Sanna Marin’s government that the pending housing loan regulation proposals are taken under review due to the economic crisis caused by the COVID-19 pandemic. A smoothly running housing market is one of the preconditions for economic recovery. Now is the time to avoid any measures that might cause additional disturbances in the housing market and affect households’ ability to relocate for work. Tightening the conditions of lending would especially affect younger first-time home buyers. The joint statement was submitted to the Finnish government on 26 August. 

The over-indebtedness of individuals and households must be curbed with preventive measures. The different forms of credit are not equal in terms of their debt effect: using a housing loan to purchase a home increases wealth, whereas consumer credit used for daily spending does not. Households must stay in control of their indebtedness. Payday loans are a tempting trail into excessive debt and payment defaults, which are particularly harmful for persons at important turning points in life – for example, to adolescents only learning personal finances and the ways of independent life.

In October 2019, a working group set by the Ministry of Finance submitted its report on macroprudential supervision tools to limit household over-indebtedness. The main gist of the report’s proposals was commendable on many levels. However, the proposals should now be re-evaluated in light of the experiences we have gained from the coronavirus-induced economic crisis. The different kinds of flexible loan servicing arrangements granted by banks have reduced the risks related to household indebtedness. It is important that households and limited liability housing companies can utilise such arrangements also in the future, and that regulation does not impose any restrictions that would prevent banks from helping their customers in times of crisis.

It is also important to consider the effects that the crisis has had and continues to have on the housing market, as well as the requirements that economic recovery poses for labour mobility. A smoothly running housing market is one of the preconditions for economic recovery. Now is the time to avoid any measures that might cause additional disturbances in the housing market and hamper households’ ability to move for work.

If new macroprudential tools are implemented in Finland, they should be targeted at housing company loans and payday loans. The number of both has drastically increased in recent years. The volume of housing loans, however, has been growing only moderately.

The maximum debt-to-income ratio proposed by the Ministry working group is a sensitive issue in many ways. Limiting a borrower’s debt relative to their individual income is part of a bigger whole, and before such mechanism is put into place, the full impact of the macroprudential tools must be comprehensively assessed. One important detail is to ensure that the limit does not become an obstacle for first-time home buyers. The average age of first-time buyers has been steadily climbing for a long time. Tightening the conditions of lending would make owner-occupied living more difficult especially for younger people.

Comprehensive and current data on the loan applicant’s existing debts would make it easier for lenders to prevent excessive indebtedness. This is why it is essential to set up a positive credit information register without undue delay. The supervision of payday loan companies should be centralised under FIN-FSA, which should also be sufficiently resourced in this regard. The resources of debt counselling, supervisory authorities and Finnish courts, which are coordinated by the Ministry of Justice, should also be strengthened.

The excessive indebtedness of Finns is a complex phenomenon, part of which is rooted in inadequate financial skills. It is therefore significant that the government has decided to centralise the coordination of financial literacy under the Bank of Finland, who has also been tasked with drawing up a national financial literacy agenda.

Additional information

Central Organisation of Finnish Trade Unions (SAK)
Hannu Jouhki, Director
tel. +358 40 669 0519

Confederation of Unions for Professional and Managerial Staff in Finland (Akava)
Vesa Vuorenkoski, Head of Political Affairs
tel. +358 40 742 6082

Finnish Confederation of Professionals (STTK)
Taina Vallander, Acting Director
tel. +358 40 1841 464

Finance Finland
Tuomo Yli-Huttula, Director of Communications and Public Relations
tel. +358 40 652 9118