In Finland, starting from the beginning of February, banks have been offering the option of mortgage loan repayment-free months or even a year free of charge. The handout intended to promote private consumption has indeed gained considerable popularity in a weak economic situation. The popularity will probably not wane, because the increase in repayment holidays means a lower threshold for households to seek flexibility in their everyday finances. When applying for an amortization leave becomes a social norm, and it is no longer a sign of facing unemployment, for example, the number of renegotiated mortgage contracts may increase significantly in the coming months as well.
Applying for short-term leave can mean significant relief for the household's monthly expenses. Offering short-term leave in this economic situation makes sense, but there can also be risks in a temporary campaign. The most significant of them will only become a year after the campaign is ending. After all, a year without amortization can easily tempt you to continue not amortizing the loan in the second year as well. I'm terribly afraid that the banks' desire to hold on to their customers will make them agree to an additional year as well. So the danger is that we slip, as if by accident, into an amortization-free mortgage culture, which makes things easier for a while, but increases macroeconomic risks in the longer term.
In the future, both urbanization and the insufficient housing production in growth centers will fuel the popularity of the reduction vacation. When the supply does not respond to the demand quickly and sufficiently, with the increase in housing wealth, it is easier for debtors to get a repayment exemption as the loan shares fall. Now is the time to realize the risk that we are slipping closer to Sweden, where households are clearly more indebted than in Finland and the price of housing has gotten out of hand.
However, the tax exemption also has its positive aspects, especially if the consumption made possible by it is focused on the home country. If it brings significant growth to private consumption, the key figures of the public economy relative to the gross domestic product will also improve. However, the real effects are not so clear-cut, as the increase in indebtedness of the private sector is only a temporary relief and in the long term increases risks even more.
Sami Pakarinen
Chief Economist
Confederation of Finnish Construction Industries (CFCI)
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