Still an opportune moment for first-time home buyers

Higher interest rates have led to a decline in property prices in Finland, which has somewhat unexpectedly opened up attractive opportunities for first-time home buyers, says Jussi Pajala, CEO of Nordea Mortgage Bank Plc.

“If you’re a first-time buyer, I would say that it is still a good time to find your dream home. Even though the exemption from asset transfer tax for first-time home buyers was discontinued at the start of the year, there are still many other incentives.”

“As a result of lower prices, first-time home buyers can still find a home for cheaper than in years. I don’t expect any major changes in the housing market in the short term,” Pajala points out. 

According to Nordea’s review of the housing market, home prices are not expected to start rising until the latter half of 2024, and even then only moderately. Therefore first-time home buyers still have plenty of time to look for studios or two-room flats at lower prices than in previous years.

A typical first home is a spacious studio or two-room flat measuring about 45 square metres. These types of homes have recently been built in abundance in fast-growing cities. 

Furthermore, before interest rates began to rise, a lot of small homes ended up in the hands of property investors who rented them out. According to Pajala, the increase in rates as well as in costs in general has fuelled uncertainty around property investment, making many of these flats available to first-time home buyers. 

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.

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

People who are thinking about buying a first home are often wondering 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 once their bank has assessed their ability to repay the loan.  

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.  

This is a common misconception, says Nordea’s Teemu Hiltunen who advises home buyers.  

“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,” Hiltunen explains.   

One good reason to contact your bank early is that your bank will be able to advise you on whether the ASP scheme or some other way to save for a home is the best option for you.

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.  

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

ASP is a government-subsidised scheme based on Finnish law, the original purpose of which was to support young people’s first home purchases in Finland. Today, first-time home buyers up to the age of 44 get to enjoy the advantages of the ASP scheme.  

“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,” Hiltunen says.  

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.  

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 terms and conditions of an ASP loan, we can negotiate with the home buyer about an additional loan and the collateral required.”

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 need to have 5% of the price of the home in savings, while people who have previously owned a property are required to have 10%.  

In other words, if you have owned a property before, the maximum home loan amount you can take out is 90% of the fair value of the collateral provided for the loan. For first-time home buyers, on the other hand, this loan cap is 95% at maximum if you have a regular home loan and 90% if you have an ASP loan.   

You can apply for an ASP loan when you have saved at least 10% of the home’s purchase price, which is more than you need for a regular loan. At the same time, you will benefit from a free state guarantee that you can get on up to 90% of your loan amount and you don’t need any other collateral.  

“First-time home buyers therefore only need to have saved 10% of the loan amount and they also get a state guarantee. 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.   

Interest benefits and interest subsidy to first-time home buyers
Interest and other fees on a home loan

Interest benefits and interest subsidy to 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 the 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.   

Previously, a large number of home owners were also able to deduct all or some of the interest they had paid on their home loans in taxation but this will no longer be allowed in the future.  

Hiltunen points out that ASP accounts offer a better interest rate on your savings than current accounts, which could help you save up for a home quicker.  

“The ASP scheme rewards motivated savers with interest benefits. 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.”

Interest and other fees on a home loan

The biggest expenses in a home loan consist of the loan margin you have negotiated and the reference rate chosen, such as the 12-month Euribor. However, a home loan often includes other smaller expenses, including an initial opening fee or repayment fees. The total of all these costs is expressed through the annual percentage rate of charge (APR). 

Example of a home loan and the annual percentage rate of charge

You take out a loan of 155,000 euros. The loan period is 24 years and the interest rate is 4.50% (October 2023). The APR is 4.7%, including an opening fee of 620 euros and a monthly fee of 2.50 euros for the automatic debiting of loan payments. The number of payments is 288. The total amount of the loan and loan costs is 256,796 euros. The monthly payment (annuity) is 887 euros. 

The amount of the loan, the loan period and the interest are a representative example for the home loans offered by Nordea. Please note that the example calculation above is indicative and does not necessarily correspond to the actual annual percentage rate of charge on the loan to be granted to you.

Home buying glossary

Asset transfer tax is a tax you pay when you buy real estate. The asset transfer tax rates will be lowered at the beginning of 2024. The tax rate on apartments is currently 2% of the sales price and will be lowered to 1.5% in 2024. The tax rate on real estate, such as single-family homes, is currently 4% and will be lowered to 3%.

However, the new tax rates will also be applied retroactively to homes bought between 12 October and the end of 2023, which means that the Tax Administration will pay you back the difference between the current rate and the new rate with interest if you buy a home during this period.

Collateral means assets that you pledge to your bank as a guarantee of repayment of your loan. The home you are buying is always the primary collateral. 

Read more about collateral.

Loan cap is the maximum loan-to-collateral ratio set by the Finnish Financial Supervisory Authority (FIN-FSA). The purpose of the loan cap is to protect home buyers from excessive debt. 

Read more about the loan cap.

State guarantee means that if your circumstances change and you’re no longer able to pay back the loan to your bank, the state will repay part of it on your behalf. 

Read more about the state guarantee

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