Iceland’s Ministry of Finance and Economic Affairs is set to reduce the maximum term of new index-linked mortgage loans from 40 years to 25 years, according to a proposal reported in Vísir. The move is designed to address concerns about the role of indexation in the housing market and how it interacts with monetary policy. RÚV, Iceland’s national public broadcaster, and other news outlets also covered the proposed changes, which are part of a broader package under discussion.
Vísir reports that the changes would take effect from the turn of the year, though other media did not specify an exact start date. The proposal comes amid ongoing debate in parliament over how and when to reduce the reliance on index-linked loans, a common feature in Icelandic mortgages.
Aim to curb indexation and support monetary policy
The Ministry’s intent is to reduce the influence of indexation in the country’s housing market and ensure that changes in the Central Bank’s policy rate have a more direct effect. The proposal would also seek to prevent the principal of such loans from increasing over any 12-month period, assuming the Central Bank’s inflation target of 2.5% is met, according to RÚV.
Legal changes under the proposal would place limits on increases in the loan principal for index-linked mortgages and could modify other types of loans as well. Pension funds play a major role in Iceland’s mortgage market, with Vísir reporting that they issued 96% of the total value of new index-linked loans.
Debate about the proposed changes is active. On the radio programme Bítinu on Bylgjan, Arna Lára, chair of the parliamentary economic and trade committee, and committee member Hildur clashed over the details and timing of the plan, Vísir reports. Konráð S. Guðjónsson of Kontext stated, “Most people agree on reducing the role of indexation; the question is how fast and when,” according to mbl.is. The quote was translated from Icelandic.
Sources
- Vísir (first reported) in Icelandic
- Viðskiptablaðið in Icelandic
- DV in Icelandic
- mbl.is in Icelandic
- RÚV in Icelandic
- Vísir in Icelandic
