Press release 23 September 2019 – 19/2019

The European Systemic Risk Board recommends new borrower-based macroprudential measures to Finland – recommendations and warnings also to 10 other EEA countries

In its recommendation to Finland published today, the European Systemic Risk Board proposes the introduction of borrower-based macroprudential measures to address vulnerabilities in the residential real estate market. The Board recommends that Finland introduce a binding limit on borrowers’ debt or debt-service costs relative to their income, restrict the type of collateral in the calculation of the LTV ratio and set a limit on loan maturity.

Today, the European Systemic Risk Board (ESRB) has published recommendations  to six and warnings to five EEA-countries on macroprudential risks and measures to address these risks.

– I support the ESRB’s recommendation for new legislation that allows us to better prepare for the risks stemming from high household indebtedness, notes Anneli Tuominen, Director General of the Financial Supervisory Authority.

The recommendation issued to Finland concerns measures to address medium-term vulnerabilities in the Finnish residential real estate market. The ESRB recommends that Finland include new borrower-based macroprudential measures in its national law to address vulnerabilities in the residential real estate market. It also recommends that the Finnish authority introduce non-legally-binding measures for supervised entities until the new measures have been incorporated into national law.

The ESRB considers high household indebtedness as the main vulnerability of the Finnish residential real estate market. The rise in indebtedness is partly attributed to rapid growth in the stock of loans taken out by housing companies.

Of the range of borrower-based macroprudential measures, the ESRB recommends that Finland should have in place at least a binding debt-to-income (DTI) ratio or a debt-service-to-income (DSTI) ratio, a loan-to-value (LTV) ratio and a limit to loan maturity. The ESRB further recommends that the calculation of the LTV ratio be adjusted as to only allow real estate assets to be considered as collateral.

In November 2016, the ESRB issued a warning to Finland on vulnerabilities in the residential real estate sector. A recommendation is a more compelling measure than a warning.

Further information

Samu Kurri, Head of Department. Requests for interviews are coordinated by FIN-FSA Communications, tel. +358 9 183 5030, weekdays 9.00–16.00.

Press release by the European Systemic Risk Board

1 Recommendation ESRB/2019/8 of the European Systemic Risk Board of 23 September 2019 on medium-term vulnerabilities in the residential real estate sector in Finland.