A block of flats under construction in Espoo on 17 October 2022. Nordea, the second largest mortgage lender in Finland, says in its latest house market review that the prices of small flats are expected to fall particularly as rising interest rates discourage investors from adding to their portfolios. (Heikki Saukkomaa – Lehtikuva)


HOUSE PRICES in the Finnish capital region are expected to drop by around 10 per cent from the peak observed last year, reveals Juho Kostiainen, an economist at Nordea.

Kostiainen on Tuesday told Helsingin Sanomat that although the prices are expected to remain on a downward trajectory this spring, most of the decline – about three-quarters – has already been witnessed.

House prices in other parts of the country are expected to decrease by seven per cent from the peak in 2022. The expectations for the capital region and other regions differ principally because the increase in interest rates is expected to discourage home buyers especially in localities where housing loans are higher than the national average, such as the capital region.

The market has been affected also by rising energy and consumer prices, as well as the general uncertainty stemming from the war of aggression waged by Russia in Ukraine. The average time it takes to sell a home, for example, has increased by 50 per cent from 60 to 90 days in the capital region, about 10 days longer than the national average.

“The house market has been in hibernation this winter,” Kostiainen summarised to Helsingin Sanomat.

Nordea said in its latest house market review that the sustained period of low interest rates on housing loans created “a bit of a bubble” in the investment housing market. The spike in interest rates has burst the bubble, sending the prices of one-room houses on a sharper downward trajectory than those of two-room and family houses.

The prices of investment properties had until recently risen at a clearly faster clip than rents in not only the capital region, but also in Tampere and Turku.

Investors have already started moving the rising costs to tenants, according to lease agreements. Rents in Helsinki were declining as recently as a year ago, but in new lease agreements they have been raised by roughly three per cent.

Euribor 12, the most popular reference rate for housing loans in Finland, rose above 3.7 per cent on Tuesday. Nordea, the second largest mortgage lender in Finland, expects the rate to creep up to around four per cent this summer before starting a gradual decline and landing at 3.15 per cent in December 2024.

Jan von Gerich, the chief economist at Nordea, pointed out earlier last month that the Finnish economy is more vulnerable to rising interest rates than many of its peers in the eurozone, as nearly all housing loans are fixed to variable interest rates. Even after the recent boom, only about a quarter of new housing loans granted in the eurozone are fixed to variable rates.

The Bank of Finland on Tuesday released data corroborating the abrupt slowdown in the housing market.

The value of new housing-loan drawdowns stood at 847 million euros in January, representing a drop of 21 per cent from December 2022 and 40 per cent from January 2022. The value of drawdowns was the lowest in 20 years, since monthly drawdowns amounted to 810 million euros in January 2003.

About 80 million euros of the total was drawn down for investment purposes. The average interest rate on new housing loans was 3.58 per cent.

The drawdowns hit their all-time high of 2,311 million euros in May 2008.

Aleksi Teivainen – HT