Home Loans / Mortgages in Finland
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- Home Loans: General Information
- Repayment Capacity & Credit Check
- Collateral, Guarantees & Pledges
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Primary source of information for this page: Federation of Finnish Financial Services
This is a brief guide only, and does not constitute legal advice
Finnish banks grant housing loans for buying a home (or occupancy rights to a home) and for building or renovating a home. As is the case worldwide, the primary criterion for obtaining a home loan in Finland is the borrower's capacity to repay the debt. Having a temporary job is theoretically not an obstacle to obtaining a home loan if prospects in the industry are good. However, at the the time of writing (January 2015) the reality is that banks have been cautious for some years. If you are not a citizen of Finland you may face additional hurdles.
In the long run an owner-occupied home usually provides the most affordable way to live in Finland. Since Finland's accession to the euro zone, interest rates have settled at a level moderate enough to keep loan servicing costs under control. However, all borrowers should be prepared for interest rate fluctuations.
Interest Rates: The trend in interest rates on housing loans in Finland has been a decline over recent years. The average rate was 1.66% in September 2014, compared to 1.98% in March 2013, 2.16% in March 2012, and 2.38% in March 2011. The amount of new housing loans being taken out in Finland has been declining. Source: Bank of Finland
Tax Benefits: Interest paid on a loan raised for buying a home can be deducted in taxation, and capital gains are tax exempt after two years of living in the home. See Tax Advantages for more information.
Applications for Home Loans: Contact the banks directly to arrange interviews. You can make a formal loan application at an interview if you wish.
- Make enquiries to as many banks as you can to see what they offer - the differences in interest rates and charges can be substantial
- The banks have specialists who will also explain tax issues - they will tell you which documents the tax authority requires
- Make sure ALL documents are translated into English, not just the ones the bank suggests are appropriate
The crucial factor is that the loan applicant's income is regular and that loan repayments leave the applicant with enough money for other expenses and living. The applicant is required to disclose all income, expenses and debts. To avoid excessive indebtedness, it is necessary to include servicing costs on other loans in the expense calculation. Any guarantees or pledges obtained by the borrower are also taken into account, as they may lead to further indebtedness if the borrower becomes liable to pay under the commitments.
Repayment ability is estimated by calculating the following:
- Net disposable income per month
- less regularly recurring expenses
- less servicing costs for borrower's existing loans (from same bank and other banks, credit card facilities, hire-purchase agreements)
- less other spending reported by borrower (food, clothing, children's expenses, commuting, insurance premiums, health care, telephone, etc)
The remainder represents the customer's monthly resources to service the new loan. The bank will require a buffer to cover unexpected expenses.
Before accepting a loan application the bank always checks credit information on the customer. If the customer has a default record, the bank may reject the application. A default is recorded if established by court order or by measures undertaken by enforcement authorities. This usually applies to payments which have remained unpaid for an average of 6 to 8 months and the person has received several recovery notices. Once recorded, a default remains on file for 2 to 4 years.
A home loan is usually secured by the property bought; the collateral value of a purchased home is usually 70% to 75% of the value of the property. If the need for finance exceeds this percentage, you can get a state guarantee for your home purchase. The loan may also be secured by other assets such as deposits, securities or any other personal assets that can be easily converted to cash. Where required, additional collateral may be provided in the form of a guarantee or pledge from, for example, the borrower's parents.
A state guarantee may be granted to anybody that buys a home or builds a house. While a mortgage is usually limited to 70% of the purchase price of a home, lenders will agree to raise their loan-to-value ratio to 85% in cases where the Housing Finance and Development Centre of Finland (ARA) undertakes to protect the financial institution against a portion of their mortgage default losses. A state guaranteed loan cannot exceed 85% of the purchase price or estimated construction costs of the dwelling.
The state guarantee may be granted for an amount that accounts for up to 20% of the amount of an owner-occupied home loan, but not exceeding €50,000 of the loan amount (ARA: February 2013). In instances where the prospective homeowner receives an interest subsidy, the loan guarantee is not subject to a charge. Otherwise the loan applicant may obtain the guarantee against a 2.5% premium.
All you need to do to get the state guarantee is inform the lender; there are no earnings caps or application formalities involved.
Other Guarantees and Pledges
If a person issues a guarantee to secure a loan, that person is usually responsible for the loan as though it were his or her own. The guarantee is often unconditional, which means that the bank is entitled to require payment direct from the guarantor without first requiring payment from the debtor. As a result, the state guarantee scheme was adopted to secure home loans partly to ensure that it would not be necessary to use personal guarantees for home loans. Pledging, instead, is an arrangement where the pledger is responsible for the loan only up to the amount of the property or assets they have pledged.
- Finnish Consumer Authority > Buying, selling and making contracts > Housing > Housing loans: Loan agreements, interest rates, obligations and more En, Fi, Sw, Sa
- Finnish Consumer Authority > Payment, bills and debt collection: Financial and Debt advice En, Fi, Sw, Sa
- Banks in Finland: Finland-wide bank and branch contacts
- Suomen Pankki: Bank of Finland: Monetary policy, currency, publications, statistics and more. Finnish, English, Swedish