Marja Nykänen, a board member at the Bank of Finland, reacted at a news conference in Helsinki in May 2022. Nykänen on Thursday viewed that measures to keep household debt are required as interest rates continue to climb. (Jussi Nukari – Lehtikuva)

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MARJA NYKÄNEN, a board member at the Bank of Finland, has called for measures to rein in the debt burden of households, reports YLE.

Nykänen on Thursday stated that such measures are required to protect the solvency of households in an environment where interest rates are continuing to rise, putting pressure particularly on indebted households.

“We’d adopt a so-called maximum debt servicing ratio, a sort of debt cap. It’d define how much of a family’s income could go toward servicing debt,” she stated at an event organised by the Bank of Finland.

“We won’t know who’s swimming without a swimsuit until low tide. The rise in interest rates may show who doesn’t have a swimsuit – who starts having challenges and disruptions.”

Finnish households ran up significant new debt during the period of low interest rates, and many have had to tighten their belt amid rising interest rates as central banks look to keep inflation in check by raising the cost of borrowing. In Finland, housing loans are typically fixed to the 12-month Euribor, which has rebounded close to the four-per-cent mark after dropping closer to three in the wake of two bank collapses in the US.

The cap on servicing costs received a lukewarm reception from OP Financial Group, the largest mortgage lender in Finland. Economist Tomi Kortela on Friday told YLE that households remain able to service their debts, as evidenced by the fact that there has been no increase in repayment difficulties.

“There haven’t been too many requests for repayment holidays, either,” he added.

Kortela estimated that the good debt servicing capacity is attributable to the employment situation and the savings households built up during the coronavirus pandemic. The surges in consumer prices and interest rates are nonetheless visible also in the statistics of banks: consumers have less disposable income.

“Finland is headed toward a modest recession,” he predicted.

Aleksi Teivainen – HT

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