​The European Systemic Risk Board (ESRB) has published a warning concerning the medium-term vulnerabilities of the residential real estate markets in Finland. The warning draws particular attention to the already high and increasing level of household indebtedness, the related risks, and the consequences that the materialisation of these risks would have for the stability of the Finnish financial system and the real economy.

The ESRB is responsible for macroprudential oversight of the EU’s financial system. In pursuit of its mandate, the Board issues warnings and – if a mere warning is deemed insufficient – also recommendations for measures to mitigate risks and vulnerabilities. A warning on residential real estate vulnerabilities has now been issued to a total of eight EU Member States.

In its warning, the ESRB notes that Finland has implemented measures aimed at reducing vulnerabilities on the housing loan markets. The Board deems these measures appropriate, but not necessarily sufficient. It draws attention to the fact that Finnish authorities do not have the legal powers to set limits on loan-to-income, debt-to-income or debt service-to-income ratios.

According to the Bank of Finland’s latest stability review, the increase in household debt poses a threat to financial stability. ‘It is important to address the shortcomings presented in the warning of the European Systemic Risk Board. However, the stability of the Finnish financial system is not exposed to immediate threats,’ notes Pentti Hakkarainen, Deputy Governor of the Bank of Finland.

The concerns voiced by the ESRB about household indebtedness and other structural vulnerabilities on the Finnish residential real estate markets have frequently been brought to the fore in the Bank of Finland’s recent stability assessments.1 In addition, the Bank of Finland has underscored the need to expand the macroprudential toolkit.

Further information: Pentti Hakkarainen, Deputy Governor, tel. 010 831 2002; Katja Taipalus, Head of Department, tel. 010 831 2345


1 Bank of Finland Bulletin 2/2016, 5/2015, 2/2015.