The Central Bank takes steps to make it harder to buy your first property

The Financial Stability Committee of the Central Bank of Iceland has decided to lower the maximum mortage rate for first time buyers from 90% to 85%. The mortage rate will still be 80% for other buyers.

The committee has decided to set criteria for how to calculate debt to income ratio of mortgage loans to consumers. The criteria will be  the minimum of 3% interests for indexed mortgages and 5.5% for non-indexed mortgages is reported in an announcement from the Central Bank of Iceland.

It has also been decided to maximize the length of indexed mortgages to 25 years, but non-indexed mortgages can be longer.

 Limit the accumulation of systemic risk

"The change in the debt to income ratio is meant to make consumers more aware of the different risks involved in different types of mortgages, but the debt service on indexed mortgages is easier in the beginning of the mortgage term but heavier as time goes by. The goal of  the above measures is to limit the accumulation of systemic risk in the financial system," is stated in the announcement.

It is also reported that the resilience  of the ssystemically important banks is good and their equity and liquidity position is well above the statutory limit.

However, it is important to make sure that with increased economic activity does not result in too much lending which could weaken the resilience of the economic system.

"if the international economic recovery takes a hit it could impact the finanical stability in the country."

 Updated: The article was updated and is now correct. It was wrong that the change would make it easier for first time buyers tobuy real estate, when the opposite is the case.

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