In the mid-term elections, the government decided to ease the tight regulation of housing finance and income taxation, and to further increase its infrastructure investments. What do these decisions mean in practice for the construction industry?
Every spring, the government makes policy decisions on the state's long-term budget framework during its budget session. This spring, the government's internal negotiation session, designated as the growth session and the mid-term government session, was held on 22–23 April. In the global uncertainty, which is also reflected in Finland's economic situation, growth measures were sorely needed.
Riihi's result was encouraging for the construction industry and created a positive outlook for the future.
- Housing finance regulations are being rapidly deregulated
- Taxation of earned income will be reduced in all income categories
- Clear additional investments in infrastructure construction
Decisions on changes to financial regulations and income tax relief will strengthen both the demand and supply of housing. Infrastructure investments will create jobs and increase accessibility across Finland.
Measures to ease financial regulation
RT, together with the Finnish Financial Services Authority, has systematically pushed for easing the financial regulation of the housing market. The strong performance of Finnish banks in European stress tests has been a sign of the stability and health of the banking sector. In a Nordic comparison, Finns are not particularly indebted, and rapidly rising interest rates have not caused Finns to default on their mortgage payments. Despite this, there has long been a desire in Finland to over-regulate the market.
The government wants to improve labor mobility and the functioning of the housing market through its decisions related to financial regulation. The measures proposed by the government are as follows:
Raising the maximum duration of housing loans from 30 to 35 years
In practice, a longer loan term means lower monthly payments. This increases households' room for manoeuvre and improves consumer confidence. People spend less money on housing costs each month and have more money left over for consumption and investment, among other things. However, there is no room for over-indebtedness and the responsibility still lies with the borrower, as Jussi Pajala of Nordea Mortgage Bank writes: "Although the loan term is longer, the solution does not take responsibility away from the consumer. The importance of financial planning is increasing, and the role of banks as advisors and partners is emphasised."
Raising the mortgage loan ceiling to 95 percent
The Financial Supervisory Authority is allowed to raise the mortgage ceiling from the current 90 percent. A higher loan share for all households will enable owner-occupied housing even with smaller savings. This will expand the demand for owner-occupied housing. This increase will most likely apply to all borrowers, meaning that the equity of ASP loans should also be only five percent. A reform of the ASP system is currently being prepared.
Enabling flexibility in housing company loans
A housing company loan is a bank loan taken out by a housing company to be established to finance the construction of a residential property. The government kept the current regulation on housing company loans, but will make it more flexible in the future. In the future, the maximum credit ratio (60=>70 percent), the duration of the repayment holiday (1=>2 years) and the maximum loan term (30=>35 years) of housing company loans can be changed by decree. Changing a decree is considerably easier than changing an entire law.
Report on the overall development of the housing market and review of Fiva's operations
The Government will commission a legal investigation into the recommendations of the Financial Supervisory Authority and launch a study group led by the Ministry of the Environment and the Ministry of Finance to resolve bottlenecks in housing and construction financing. The study group will cooperate with the Ministry of Justice in preparing the Housing Transactions Act.
The Finnish mortgage market should be examined as a whole and ways should be found to free up money for domestic consumption, investment or even travel. The loan servicing culture in Finland is traditionally strong and mortgages have not become a problem for banks. The regulation of mortgage lending is stricter than what macroprudential considerations would require. Mortgages have been paid off with a focus on upfront payments and tight payment schedules.
The measures now presented by the government are only the first steps and it is good that the development is being carried out in cooperation with the reform of the Housing Transactions Act. In Finland, the financing of housing construction and mortgage lending has been examined mainly from the perspective of macro-stability and not growth or the needs and opportunities of households.
Reverse mortgage
The government is launching a separate study on ways to increase the popularity of reverse mortgages in Finland. A reverse mortgage is a loan taken out against your own home, which provides financial flexibility in various life situations.
Ready to be implemented
In order for these proposals to have the impact that the construction industry hopes for in accelerating growth and housing construction, they must be implemented into legislation and practice.
The housing market is still slow and the recovery of new construction will take time. It will be difficult to achieve a sufficient level of housing production even in the longer term. It should be remembered that Finland still lags behind other Nordic countries in encouraging owner-occupation, where the tax deduction rights for mortgage interest range from 22 percent to 33 percent in Sweden. In Finland, the tax deduction right has been gradually waived over the past decade or so.
In addition, it is necessary to review the EU-level regulation of finance (Basel) and its deliberate easing, as proposed by the von der Leyen Commission. The regulation currently does not take into account the functioning Finnish housing company legislation and the RS system for housing trade. The Finnish housing company is significantly more stable than the systems in other European countries.
See also
Lauri Pakkanen
Public Affairs Manager
lauri.pakkanen@rt.fi + 358 50 522 7797Confederation of Finnish Construction Industries (CFCI)
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