First-time home buyers are in a nice spot

Higher interest rates have led to a decline in property prices in Finland, which has opened up attractive opportunities for first-time home buyers. 

“As a result of lower prices, first-time home buyers can still find a home for cheaper than in years. The housing market is not going to change over the short time,” says Jussi Pajala, CEO of Nordea Mortgage Bank, who encourages first-time buyers to look for homes.

According to Nordea’s review of the housing market, home prices are expected to start rising in the latter half of 2024, and even then only moderately. Therefore first-time home buyers still have plenty of time to look for a suitable home at lower prices than in previous years.

Tiesitkö nämä?

3 facts about home loans

  1. The average first-time home buyer in Finland is 30 years old.   
  2. 63% of Finnish households own their homes and 31% have a home loan.  
  3. 49% of home owners have a home loan.  

What is a home loan?

Five statements – true or false?

Which of these statements about home loans are correct?

Jussi Pajala, the CEO of Nordea Mortgage Bank, tells us which statements about home loans are true and which are false.

Housing - Man playing charades - Small overlay

Statement: You can’t buy a first home without any savings of your own.

True: This statement is true, as you can obtain a loan for 95% of the price of your first home, but you have to finance the remaining 5% in some other way, such as with your own savings. You also have to ensure that the collateral for the loan is sufficient. With an ASP loan, you must save at least 10% of the price of the home.

Statement: You can’t buy a single-family house as your first home.

False: You can buy a single-family house as your first home but it isn’t very common. The main thing is to make sure you can afford it. The collateral value of the home you buy is usually 75% of its price, which means you need to provide additional collateral worth 25% of the price. If the property is in poor condition, its collateral value may be lower, so you would need more additional collateral. If you move into a single-family house, you must also be able to maintain and renovate it with your income or savings.

Statement: There’s a maximum limit on a home loan for buying your first home.

True: The maximum amount of the loan is always determined by your payment ability. If you have lots of savings and income and your collateral is in order, there’s nothing to prevent you from buying a bigger or more expensive home. However, with ASP loans, there are maximum limits determined by the location of the home.

Statement: You should buy your first home at an early age.

True and false. There’s no right or wrong answer to this one. What you should do is consider the best option for your personal circumstances, be it a rental apartment or your own home. Owning a home is financially worthwhile, because you accumulate wealth as you repay your loan. The younger you are when you buy a home, the longer you have to accumulate home equity. 

Statement: A first-time home buyer should consider an interest rate cap offered by the bank on their home loan.

True: Yes, you should definitely consider taking an interest rate cap. This doesn’t apply to first-time home buyers alone, but anyone considering buying a home. All home loans are put to a stress test that measures the borrower’s repayment ability with an interest rate of 6% over a loan period of 25 years. A suitable interest rate cap can guarantee a lower interest rate, at a maximum of 5% for example, ensuring that the reference rate never exceeds this threshold during the validity of the cap. This would leave the borrower with extra cash to spend as they like. 

Benefits for first-time home buyers

As a first-time buyer, you enjoy many advantages that will make it easier for you to take out a loan and get your first home. 

Special benefits for first-time home buyers:

  • You need less savings.
  • You can get a free state guarantee for your ASP loan on up to 90% of the home’s purchase price.
  • Benefits of the ASP scheme.

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Less savings
Free state guarantee with an ASP loan
Interest benefits and interest subsidy

First-time home buyers need less savings

One of the biggest advantages for first-time home buyers is that you’re required to have significantly less savings when applying for a home loan compared to people who have already bought their first home.  

As a first-time buyer, you only need to have saved 5% of the price of the home, while people who have previously owned a property are required to have saved 10%. However, with an ASP loan, you are required to have savings worth at least 10% of the price. 

“Not every young person has heard of the ASP scheme or they find out about it too late since you need to save money into your ASP account for eight consecutive calendar quarters to be eligible for an ASP loan. Many of them could have saved a lot of money over the years and qualified for the benefits if they had known about it,” says Teemu Hiltunen, who advises customers on buying a home at Nordea.  

Even if you’re not going to buy a home right away, it’s important to start saving for it as early as possible. Even small amounts add up to a good nest egg in the long run. This also gives you an idea of what it’s like to put aside money regularly and to repay your loan in the future.  

“Most young people get the idea of buying a home from their parents who think it’s important to have your own home. And often the habit of saving also starts at home,” Hiltunen says.  

Read more about ASP loans.

Get on the property ladder with the help of a state guarantee and the ASP scheme  

ASP savers benefit from a free state guarantee that covers up to 90% of the loan amount. This means that no additional collateral is necessary. “This is one of the advantages of the ASP scheme that many young people might not know about,” Teemu Hiltunen remarks.  

Without the ASP scheme, you can only use a maximum of 75% of the purchase price as collateral. To secure the rest of your loan, you will need to provide other real collateral, such as more savings, or buy an additional guarantee from your bank.

According to Hiltunen, it’s also possible to buy a more expensive home than the ASP scheme would normally allow. “If the price of the home exceeds the maximum amount of an ASP loan, we can negotiate with the home buyer about an additional loan and the collateral required.”

Read more about ASP loans.

Interest benefits and interest subsidy for first-time home buyers

Although home prices have fallen, first-time buyers might be apprehensive about the fact that interest rates on home loans are currently much higher than usual.  

When you’re trying to decide if it’s the right time to buy or not, you may be interested to know that ASP loans offer lower interest rates than regular home loans. Moreover, if the interest rate on an ASP loan exceeds 3.8%, the state will pay part of the interest for the first ten years through the interest subsidy scheme.   

ASP accounts also offer a better interest rate on your savings than current accounts, which could help you save up for a home quicker. In addition to the 1% deposit interest, you also earn 4% additional interest once you have taken out an ASP loan. Both the deposit interest and the additional interest are exempt from tax.

When should I contact my bank if I’m planning to buy my first home? 

Young people who are thinking about buying a first home sometimes wonder if it’s possible to meet with their bank to discuss a loan and if they will be accepted for a loan altogether. Jussi Pajala points out that age is by no means a barrier to getting a loan.  

“Young people can get into the loan negotiation process and be accepted for a loan as long as their bank is able to verify that they’ll be able to pay the loan back.”

The loan negotiation deals with different aspects of borrowing, including the interest rate, collateral, repayment methods and how to protect your loan from higher rates. 

Many people think that they should only contact their bank once they have found the perfect home. Teemu Hiltunen says many young customers should consider in advance whether ASP saving or another form of saving for a home would be the best option for them.

“You should get in touch with your bank as soon as you start thinking about buying a home. We will walk you through your options and help you map out your dream home.”

Read about loan negotiations 

Home loan basics – learn the vocabulary

If you’re planning to buy your first home, you might come across various issues and concepts that you’d like to know more about.

Learn the vocabulary of home loans

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ASP-tili eli asuntosäästöpalkkiotili on tuottava tili ensimmäisestä kodista unelmoivalle. Säästät asunnon hinnasta vähintään 10 prosenttia, ja lainaamme sinulle loput.

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ASP loan

Save at least 10% of the price of your home, we will lend you the rest.

Read more about ASP loan