ASÍ: Housing Crisis in Iceland Imminent Skip to content

ASÍ: Housing Crisis in Iceland Imminent

Managing director of ASÍ (Icelandic Confederation of Labor) Gylfi Arnbjörnsson predicts that the increase in interest rates on mortgages and banks barring home buyers from assuming old mortgages on a lower rate will cause a housing crisis in Iceland.

“It is obvious that a crisis on the real estate market is being administered,” Arnbjörnsson told Morgunbladid. He explained that while the price of real estate and mortgage interest rates is increasing, the maximum mortgage available is decreasing, leaving home buyers with much worse options than three years ago when the banks first offered mortgages.

Mid-year 2004 the average price of a 130-square-meter apartment in Reykjavík was ISK 17 million (USD 290,000, EUR 198,000). Today, such an apartment is sold for ISK 33 million (USD 563,000, EUR 383,000). The lowest interest rate of mortgages in 2004 was 4.15 percent, set at 6.4 percent today.

The rates of state-insured short-term securities have also risen considerably in three years. The rate, which was 3.4 percent in 2004, is currently set at 8.0 percent. “I didn’t expect to see interest rates like this in Iceland ever again,” said Fridrik St. Halldórsson, managing director of Kaupthing Bank’s Retail Banking.

According to Ingibjörg Thórdardóttir, chairman of the Association of Real Estate Agents (FF), rising interest rates and a higher debt burden is making it increasingly difficult for people to pass credit ratings.

It is also becoming increasingly common that people take their mortgages with them when they buy new apartments, Thórdardóttir said, which means that the situation of those buying their first apartment is worsening still.

Home buyers are not only faced with purchasing more expensive apartments on higher interest rates, but they can also not rely on assuming old mortgages on lower rates.

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