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Changes to Housing Financing Fund Announced

Iceland’s government presented changes to the state-run Housing Financing Fund (HFF) yesterday. The fund will now be able to grant mortgages of up to 80 percent of the purchase value of a property, instead of the value assessed for fire insurance.

The maximum amount of a mortgage will increase from ISK 18 million (USD 220,000, EUR 142,000) to ISK 20 million (USD 224,000, EUR 158,000), Fréttabladid reports.

What this means in practice, as laid out by Morgunbladid, is that for an apartment which costs ISK 25 million (USD 305,000, EUR 197,000) with a fire insurance value of ISK 15 million (USD 183,000, EUR 118,000), the buyers can borrow ISK 20 million instead of only ISK 12 million (USD 147,000, EUR 95,000).

According to Fréttabladid, the changes to the HFF also include two new loan categories to help banks refinance mortgages and issue new mortgages, and more short-term government bonds will also be issued.

Steingrímur J. Sigfússon, chairman of the Left-Greens, the largest opposition party, celebrates the government’s actions although he says the changes should have been made sooner.

“It is remarkable that the HFF, which the banks and many members of the cabinet wanted to get rid off, has become a savior,” Sigfússon said. “It will be interesting to see whether it will be left alone for a while now since it is supposed to set things straight.”

Director of Landsbanki Bank Halldór J. Kristjánsson is also pleased with the changes to the HFF, which he says will increase mobility in the debenture and currency market.

“I believe these are special measures compatible with the current [economic] situation. They will improve the liquidity situation and revive the real estate market, like central banks and governments have been doing in other markets. That is a good thing. But I have doubts about lengthening the reach of the HFF and increasing its loan authorization,” Kristjánsson said.

Ingibjörg R. Gudmundsdóttir, vice-president of the Confederation of Labor (ASÍ), believes the changes to the HFF are positive. “I’m relived that they have been made. These actions were timely and should be able to provide flexibility and help people who have run into trouble with purchasing apartments.”

Hannes G. Sigurdsson, assistant manager of the Confederation of Icelandic Employers (SA) agrees. He said the government’s actions are moderate and designed to soften the downswing of the economy and prevent it from becoming too steep. Sigurdsson does not believe that these actions will encourage inflation.

Ingibjörg Thórdardóttir, chairman of the Association of Real Estate Agents in Iceland (FF), told Morgunbladid that although she approves of the changes made to the HFF, they are not sufficient.

In Thórdardóttir’s opinion, the maximum mortgage should be higher than ISK 20 million and the mortgage ratio should be up to 90 percent of the property’s purchase value.

Click here to read more about the current economic situation in Iceland.

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