Nearly 3,400 apartments in Iceland are now approved for short-term rentals, double the number at its peak in the years before the pandemic. Homeowners are increasingly switching from non-indexed to indexed loans for refinancing.
Sharp increase in short-term rentals
Owners of nearly 3,400 apartments across Iceland have received permission for home rentals for up to three months a year. This is double the number at its peak in the years before the pandemic.
The increase is particularly noticeable in the capital region, according to Ólafur Þórisson, an economist at the Housing and Construction Authority. “The number has increased by 70% so far this year, from about 1,200 last year to nearly 2,200 this year,” Ólafur told RÚV on Monday. “These are completely new heights that we are reaching.”
Over the weekend, labour leaders and chairpersons of tenant and resident associations in downtown Reykjavik criticised the significant increase in apartment rentals on Airbnb, as indicated by a new monthly report by the Housing and Construction Authority and a survey among tenants.
“The short-term rental market is attracting apartments that would otherwise have been used for residential housing,” Ólafur observed. “We see this trend also in a rental market survey we conducted in the autumn months. Recently, respondents have felt that the supply of suitable residential housing has been decreasing.”
Lenders gravitating towards indexed loans
But it is not only in the rental market that significant changes are noticeable. Homebuyers are shifting from non-indexed to indexed loans like never before, and prepayments of non-indexed loans have tripled in a short time.
Most of the housing loans taken by Icelanders in September were used to pay off older housing loans, not for purchasing new homes. People paid off non-indexed loans worth ISK 20 billion [$146 million / €133 million], mostly by taking new indexed loans and, to a lesser extent, by switching from variable to fixed rates on non-indexed loans.
“In historical context, the prepayments of non-indexed loans are double what the prepayments of indexed loans were after the interest rate reductions during the global pandemic,” Ólafur remarked. “And the amounts now are about ISK 20 billion [$146 million / €133 million] in September alone, just from the prepayment of non-indexed loans.”
When asked what might explain this, Ólafur stated that many non-indexed loans at fixed rates were coming up for an interest rate revision. Also, borrowers were gravitating towards indexed loans. “It is also the case that individuals who signed non-indexed loans at variable rates are moving from high nominal rates to indexed rates in increasing numbers.”
According to the aforementioned new monthly report from the Housing and Construction Authority, more balance is being achieved in the real estate market. The number of purchase agreements increased by 100 from month to month, mainly owing to young people purchasing small apartments.