Iceland Presents Plan to Help Indebted Households Skip to content

Iceland Presents Plan to Help Indebted Households

Prime Minister Jóhanna Sigurdardóttir and Minister of Finance Steingrímur J. Sigfússon yesterday announced steps to lighten the burden on the most indebted households in the country, including the possibility of writing off up to 40 percent of some debts.

Sigurdardóttir said the government’s actions are aimed at helping those with the highest debt burden and therefore she does not support ideas of a 20 percent flat write-off, Fréttabladid reports.

Prime Minister Jóhanna Sigurdardóttir. Photo by Geir Ólafsson.

“We don’t believe it is right to have a flat write-off across the entire line regardless of whether people need it or not,” the PM explained. “We’d rather have the space to do better and more for those who are suffering the most.”

Sigurdardóttir then discussed five points of action to help households that the government is either working on or has already undertaken:

1) Make it possible for debtors to change foreign currency loans to conventional indexed loans.

2) Increase the maximum amount of paid interest relief and the guideline amount of interest relief by 25 percent.

3) Widen debt consolidation so that it also includes real estate mortgage claims.

4) Allow all loan institutions in the country to use the same measures to resolve problems regarding down payments of loans as the state-run Housing Financing Fund (HFF).

5) Consider allowing the HFF to grant new housing credit to debtors to pay up the mortgages they have with the banks and savings banks.

During yesterday’s press conference, Sigurdardóttir and Sigfússon discussed a new report by the Central Bank on the status of household debts.

According to the preliminary results, the capital position of 14,000 households, which is 18 percent of households in the country, is negative. The capital position of 16,000 households (20 percent) is less than ISK 5 million (USD 44,000, EUR 35,000).

These preliminary results don’t include car loans and overdrafts, which are likely to worsen the situation.

At the same press conference, Sigfússon revealed that the government had reached an agreement yesterday on establishing an asset administration company to take over and solve the problems of “companies that are economically advantageous for society,” whose operations are related to food safety, transport safety and telecommunication safety.

The asset administration company will have an independent board and make decisions based on laws and regulations in cooperation with the Central Bank and labor and employer unions.

Sigfússon also discussed ideas on changing the priority of repayment because of defaults on taxation claims so that defaulters first pay into the capital of the debt but not the interest rates, as is the current arrangement.

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