Financial stability assessment : Debt-to-income cap and maturity limits necessary to curb financial stability risks

Abstract

The vulnerabilities related to housing finance have increased in Finland during the COVID-19 pandemic. Long housing loans are being taken out more than ever and a larger proportion of new mortgages are being granted to borrowers whose total debts will then be very high relative to income. The persistent upward trend in household indebtedness will undermine the economy’s ability to withstand future economic crises. A debt-to-income cap and a limit on the maturity of housing loans should be introduced without delay to stop the loosening of credit standards.