A new Finnish act on a cap on housing loans entered into force on 1 July 2016. The loan cap will enhance the stability of the financing system and curb households' excessive indebtedness as well as overheating of the housing market. A loan cap is applied to new loans to be granted.
The loan cap will be revised as of 1 July 2018, after which date a housing loan may be no more than 85 per cent of the fair value of the security provided for the loan. During 1 July 2016 - 30 June 2018, the loan cap is 90 per cent. In the case of a first home, the loan cap will not be revised and will continue to be 95 per cent of the fair value of the security provided. When buying a home, the fair value of the security refers to the purchase price.
Savings and self-financing share
In future, the customer's own savings share, i.e. the down payment for the housing loan, will be more significant than before. A home buyer must have at least 15 per cent (or 5 per cent in the case of a first home) of own savings or a corresponding amount of other security. For an ASP loan, the self-financing share must be at least 10 per cent in the future, too. You cannot buy a home wholly with debt by using the home to be bought as the only security. A personal guarantee is not accepted as security when calculating the loan cap.
The loan cap is only available for the acquisition of a share in a housing company or residential property or for loans intended for basic renovation. In addition to a permanent residence, the loan cap is applicable to loans granted for the purchase of a holiday home or an investment property.
The loan applicant must have sufficient loan servicing capacity for the total loan amount which is considered to cover both the existing and any planned loans. Besides the self-financing share, you can also cover the missing 15 per cent with security if additional security is available and your loan servicing capacity is sufficient.
The loan cap highlights the role of saving, and pre-saving will become increasingly important. Regular saving offers a financial buffer against increased interest rate costs and unexpected expenses.
Loan cap in brief:
- You will be granted no more than 85 per cent of housing loan of the fair value of the security provided for the loan.
- First home buyers' loan cap is 95 per cent at maximum, but in the case of an ASP loan the maximum amount will remain at 90 per cent.
An example of the loan cap and its security:
- The purchase price of the home is 100,000 euros.
- You are entitled to a loan of 85,000 euros at maximum (loan cap).
- The security value of the home to the bank is 75,000 euros at maximum.
- Own savings totalling 10,000 euros or other additional security is required for the proportion exceeding the security value of the home. OwnGuarantee can be used as the additional security.
- If you draw down a loan exceeding 85,000 euros, you will need own savings or other security to cover the proportion exceeding the loan cap.