Economist: Icelandic families dangerously indebted Skip to content

Economist: Icelandic families dangerously indebted

According to a new report from the Public Union of Iceland (ASÍ), many families in Iceland owe more than what they earn and the average Icelandic family owes more than families in most other European countries.

“Of the countries around us only Danes and the Dutch owe similar amounts as we do,” Ólafur Darri Andrason, an economist at ASÍ, told Fréttabladid.

“There are two things in our defense,” Andrason said. “The Icelandic nation is rather young; we collect debt in the first part of our lives and repay it in the second. It is also much more common to invest in private housing here than in many other countries.”

Andrason said families in Iceland owe on average about 80 percent of their pure assets without taking pension funds into consideration. If pension funds are included, the debts total to 40 percent of assets.

“This is a dangerously high percentage,” Andrason stated.

Interest payments of loans as percentage of disposable income have increased, which according to the ASÍ report translates to increased risk for families.

“The families have become very sensitive towards inflation, changes in interest rates, income and property prices,” Andrason explained.

Katrín Ólafsdóttir, an economist at Reykjavík University, is concerned that education on the economy is not sufficient and that people may not realize what it means to take loans.

“We are in a position we have never been before; there are many options and we can take higher loans for a longer period of time than before,” Ólafsdóttir said.

“Many don’t realize the currency risk involved in taking foreign loans. If anything goes wrong people get into trouble quickly because not much has to happen for the monthly payment to rise,” Ólafsdóttir concluded.

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