We like that attention is paid to household indebtedness and efforts are made to prevent the negative effects caused by indebtedness.
General comments on the report
It is generally known that so-called instant loans, which are offered to consumers even without collateral and with high interest rates, have grown and caused an increase in payment defaults. So far, there have been no problems with mortgages or housing association loans. However, in our opinion, the macro-stability measures proposed in the working group's report and articles are mainly aimed at housing loans granted to consumers and the use of housing association loans. It should be noted that the debt risk of mortgage lending cannot be compared to consumer loans because with a mortgage the consumer always gets real property.
We also note that the drafting of the statement has been made more difficult by the fact that the actual justifications of the article texts have not yet been available.
Notes on key proposals
Due to urbanization, the need for new apartments in growth centers will continue to be high. The construction cycle clearly seems to be slowing down, as construction has supported the Finnish economy in recent years. According to the forecast of the construction industry, next year the volume of housing construction will drop significantly, while next year starts are expected to fall to 32 apartments. The construction of an estimated 000 apartments will start this year, which is 38 percent less than the previous year. Investors' demand still seems to persist, but household demand suffers from uncertainty. In this election period, growth regions need about 000 apartments.
The effects of the working group's presentations affect not only households but also investors. A macro-stability policy that limits borrowing can probably slow down housing production and, with it, urbanization. We consider it important that housing production remains sufficient in relation to the need, and thus housing prices and rental levels remain under control.
Existing macroeconomic instruments, such as the loan ceiling and the instruments introduced for consumer lending in September 2019, are already able to curb consumer indebtedness. Care should be taken when introducing new macro stability instruments because their effects can be unpredictable.
The working group proposes a maximum debt ratio according to which, in the future, credit providers should not grant consumer credit falling within the scope of KSL Chapters 7 and 7a, except up to the extent that the total amount of new credit from previously granted credits to the customer in relation to annual income does not exceed 450 percent of the customer's annual income. When calculating the maximum debt ratio, all the customer's credits are taken into account as previously granted credits to the customer, as well as the portion of the housing association's debts that will belong to the customer's residential property. Annual income takes into account the earned income, benefits and permanent and regular capital income received by the customer during the most recently ended calendar year in gross amounts.
In our opinion, the proposed debt ceiling would tighten the availability of mortgages. The debt ceiling would make it especially difficult for young people to purchase their first home. In recent years, the number of first-time home buyers has decreased and the average age has risen to almost 29 years. It should be noted that the difficulty of obtaining a loan for a first-time home buyer also affects the cycle of the entire chain of home buyers, when basically home buyers move from a smaller apartment to a larger one, i.e. the first buyer starts the chain. In addition, obtaining a loan tied to income would constitute an obstacle to buying an apartment for those who have recently graduated from a profession and those who are transitioning from family leave to working life, when only the annual income of the household's most recently ended calendar year is considered as annual income.
The debt ceiling limits the purchase of an apartment, especially in the capital region and some other growth centers, where apartment prices are the highest compared to the income level. The proposal on the debt ceiling would lead to some middle-income households falling out of the owner-occupied housing market in those areas. This would hit single-person households most painfully, the number of which is clearly increasing. The regulation would limit consumers' freedom of choice to choose their housing. Since the regulation cannot be different in different regions, it would put in a different position, especially those who want to move to large urban areas in search of work. Tightening the debt ceiling would affect the mobility and location of the workforce and worsen the labor market mismatch problem.
The working group's proposal includes an exception possibility, according to which the lender could deviate from the requirement in 15 percent of the lending volume during each quarter. This group would at least include loan applicants whose assets are taken into account when looking at the loan amount. Our point of view is that there would be a significant proportion of loan applicants falling under the 15 percent lending deviation, which would further slow down the lending process and thus the housing transaction.
The working group suggests that the maximum debt ratio of 450 percent does not apply in a situation where the customer is granted credit for the purchase of residential property, which he uses as a temporary solution for a maximum of one year while moving to another financing arrangement for residential property. The question is the so-called on bridge financing and we support the proposal. However, we are concerned about the functionality of the aforementioned provision in practice.
In the working group's proposals, the only deviation possibilities for housing loans and housing-guaranteed consumer loans are 15% of new credit agreements during the quarter, as well as the granting of student loans and temporary financing situations.
- The construction industry opposes the regulation of the maximum debt ratio in the presented form. The presented 15 percent exception possibility is also too low.
- The construction industry considers the maximum loan period of 25 years too short, especially in the capital region. A longer loan period would enable smaller repayment installments.
Income register and positive credit information register and housing association loan information
The presented debt ceiling should only be introduced when a positive credit information register is in operation, which would cover all the debtor's debts and the debt shares he is responsible for, and when creditors have been given the opportunity to use the national income register. Income and debt information should be available electronically and not based on information provided by the credit applicant, memory photos or ticket slips. Obtaining housing association loans for apartments also requires an up-to-date property manager's certificate, in connection with which the apartment register is just being prepared. Until the above-mentioned registers are in use, granting credit will become complicated and applying for credit will become more difficult and slower from the perspective of households. Over-indebtedness can best be prevented if the registers make it possible.
- The construction industry proposes that the maximum debt ratio regulation be introduced only when the above-mentioned registers are in use.
Restrictions on housing association loans in new construction
The working group proposes that loans granted to housing associations for new construction be set at a maximum credit ratio equal to 60 percent of the debt-free price of the housing shares to be sold. The credit agreement must not contain contractual terms according to which the capital of the debt is not reduced regularly during the first five years after the building control authority has approved the community's building or buildings for use in their entirety. In addition, the maximum length of the housing association loan repayment period is 25 years.
The increase in housing association loans since 2012-2013 was due to the reduction of the right to tax deduction for mortgage interest and, on the one hand, the low interest rate. At the same time, the number of investors in the housing market increased. The increase in the number of housing association loans has also been influenced by the considerable increase in new construction since 2015. It should be noted that, at the same time, consumers' "direct" mortgage loans have decreased. As the importance of tax incentives decreases, housing association loans have become a competitive financing option for purchasing your own apartment.
From the point of view of consumers, housing association loans and repayment holidays have made it possible to get into owner-occupied housing with a smaller share of self-financing, and consumers have not had to tie up funds immediately when construction begins. This has enabled the purchase of an apartment, especially for young people, first-time home buyers, and on the other hand, it has also made it easier to exchange an owner-occupied apartment for a new apartment. Housing association loans also reduce the risk of so-called from the two-apartment trap, when the consumer has more time than before to realize his old apartment after reserving an apartment.
Housing association loans have contributed to the so-called the entry of consumer investors into the market, which has significantly increased the construction of rental apartments, especially in those areas with the greatest shortage of rental apartments.
Housing association loans are very important for all builders as a form of financing during construction. When enough reservations are received for the object in advance marketing, the company loan enables the object to be started. A significant number of new and medium-sized construction companies have entered the market, which has increased competition in the construction industry. If the possibility of construction-time financing with a housing association loan is significantly limited, the start of new projects will become more difficult or even reduced.
The Finnish housing stock company and the RS system connected to the housing trade are internationally unique and work well in our opinion. We are not aware that housing association loans for new developments have caused problems in Finnish housing associations. According to the Housing Corporations Act, the housing company has effective means to intervene in the partner's failure to pay. The housing association's board can give a shareholder a warning for two months' arrears and the actual decision to take possession can be made in the housing association for three months' arrears for three years. During the taking of possession, the housing association can rent out the apartment and withhold the unpaid rent, the consideration from the period of taking possession and, in addition, all other expenses incurred by the company.
We also do not see a risk that the investor groups could direct the housing company's decisions with their decisions. The Residential Joint Stock Company Act has provisions on voting restrictions, in situations where one or more of the same parties would use their voting power with more than 1/5 of the share in the general meeting.
- According to the construction industry's view, the working group's proposals on the maximum debt ratio, the 60 percent housing association loan ceiling and the prohibition of repayment holidays can cause a significant market disruption and reduce the supply of apartments, which will also increase rents and apartment prices. The effects have not been sufficiently assessed, and we propose that before the final regulation, sufficient impact assessments are made of the use of the currently available macroeconomic instruments on mortgage lending, housing production, housing prices and rents, labor mobility, employment and the economy.
- The construction industry proposes 70 percent as the ceiling for the corporate loan. If the ceiling is lower than 70 percent, banks should be given the option to allow a higher loan share if the item is low-risk.
- The construction industry proposes the maximum length of the short-term leave to be two years. This makes it easier to cover the various costs associated with moving into an apartment. The grace period would also prevent consumers from resorting to consumer loans to cover costs related to moving.
- A sufficient transition period should be provided for possible regulation. It should be noted that the publication of the report, which is now in the opinion, has caused uncertainty in the housing market, and the actions would weaken the prospects of an already declining economic cycle. The actions could have a significant impact on employment and the national economy.
Act on amending the Act on credit institution operations
The text of section 11a subsection 1 should be clarified. The section states that the calculation takes into account "the total amount of previously granted credits and the new credit". The presentation gives the impression that all previously granted credits are taken into account as previously granted credit, when of course only the unpaid portion of previously granted credits should be taken into account at the time of granting credit.
In other respects, we commented on proposals 11a and 11b in the section "notes on key proposals".
Deviation possibility in relation to consumer loans
Paragraph 11 of section 2a contains a deviation possibility of 20.000 euros, when a consumer loan according to KSL chapter 7 is granted (not a housing loan). In our opinion, this makes it possible for the customer to apply for a maximum of 20.000 euros in credit from different credit institutions and express companies freely, if he has not previously been a po. a customer of a credit institution. In our opinion, this leads to the fact that, depending on the loan applicant's income, he could even apply for more consumer loans than the maximum debt ratio.
- The construction industry does not consider it justified that the regulation of consumer creditor and quick-lever lending is so lax in the way that the possibility of deviation allows and enables significant quick-lever indebtedness, regardless of the maximum lending ratio.
- In our opinion, subsection 11a 2 should be clarified because it remains unclear what is meant by the provision.
Act on amending the Act on Financial Supervision
The construction industry supports the proposal that the law also adds the so-called small loan companies that are obliged to register in the register of lenders and peer-to-peer loan brokers kept by the Financial Supervisory Authority.
Act on amending Section 6 of the Act on the Supervision Fee of the Financial Supervisory Authority
The construction industry supports the proposal. We like that the actions are also targeted at other lenders than credit institutions, in which case responsible lending practices would also extend to companies offering consumer loans.
Act on the registration of certain credit providers and credit intermediaries
The construction industry supports the proposal. It is clear that the regulation should apply to all entities that grant credits in accordance with KSL chapter 7 or 7a, such as companies granting small loans and peer-to-peer loan brokers.
However, we make a statement elsewhere in this statement, which also applies to the regulation of the maximum debt ratio regulated in this law.
Act amending Chapter 5 § 1 and Chapter 7 § 1 of the Act on Prevention of Money Laundering and Terrorist Financing
The construction industry has nothing to say about changing the aforementioned sections.
Act on amending the Consumer Protection Act
According to section 14b, the lender may not use conditions in the home loan based on which the loan repayment period at the time the loan is granted is longer than 25 years. However, in 10 percent of the credit agreements in each quarter, the creditor may deviate from the maximum repayment period referred to above.
In this regard, we refer to what we said earlier in the section "notes on key proposals".
Statement in pdf format
Anu Kärkkäinen, director, business policy affairs