If the plan currently discussed between the government and the Interest Association of Households (HH) for an 18 percent flat write-off is carried through, approximately ISK 220 billion (USD 2 billion, EUR 1.4 billion) in mortgages would be written off.
Copyright: Icelandic Photo Agency.
Receivable mortgages amounted to ISK 1,230 billion (USD 11 billion, EUR 8 billion) at the end of the summer, most of which, nearly ISK 730 billion (USD 6.6 billion, EUR 4.7 billion), belonged to the Housing Financing Fund (HFF), Morgunbladid reports.
The banks have ISK 320 billion in receivable mortgages and the pension funds approximately ISK 184 billion.
If the principle of these loans is reduced by 18 percent, it could mean write-offs of ISK 130 billion for the HFF, ISK 60 billion for the banks and ISK 30 billion for the pension funds.
On a personal level, an 18-percent write-off of an ISK 20 million (USD 180,000, EUR 129,000) mortgage would mean that the principle would drop to ISK 16.4 million (USD 147,000, EUR 106,000).
Monthly payments would decrease from ISK 100,000 to ISK 82,000 (USD 898 to EUR 737, EUR 646 to 530) and the ultimate mortgage cost would drop from ISK 95 to 78 million (USD 853,000 to 701,000, EUR 614,000 to 504,000).
These ideas have not been well received by everyone. They are opposed both by members of the government and the opposition, as well as among economists and within the banks.
However, the HH has pointed out that it is more beneficial for the banks to lower claims on debtors or make new agreements with them than carry on with the same policy, given that only 37 percent of mortgages from banks are being paid back.
Ideas on flat write-offs are not favored by the pension funds. “We don’t like these ideas,” said Arnar Sigurmundsson, chairman of the Icelandic Pension Funds Association, reasoning that the interference of government can only lead to the depreciation of assets and curtailment of pension rights.
“We understand that many people are experiencing difficulties but they cannot be helped by cutting the benefits of pensioners,” Sigurmundsson said.
The government is discussing possible solutions for indebted homeowners with various parties and continued meetings are scheduled.
Click here to read more about housing problems in Iceland.
