State Will Ease Debt Burden of Loans in Iceland Skip to content

State Will Ease Debt Burden of Loans in Iceland

The monthly debt load of indexed mortgages and car loans in ISK will drop by 13 percent on November 1 to its status of January 1, 2008, and the monthly debt load of mortgages and car loans indexed in foreign currency by 30-40 percent on November 1 to its status of May 1, 2008.

From central Reykjavík. Photo by Páll Stefánsson.

Minister of Social Affairs Árni Páll Árnason, Minister of Justice Ragna Árnadóttir and Minister of Business Affairs Gylfi Magnússon presented these plans yesterday, RÚV reports.

“We are trying to prevent thousands of people—some numbers predict up to 20,000 people—from going into default,” Árnason explained. “Mortgages have developed in such a way that they are in no consistency with people’s payment ability.”

With these measures, banks and loan institutions are taking on a certain level of risk because extensive write-offs may have to take place at the end of the loan period.

“We don’t know what the [financial] damage will be, but it is in everyone’s interest to row in the same direction,” Árnason said. “It is important that this dive will be as short as possible for us all.”

“The banks have to place considerably high bets, assuming that they will benefit from salaries increasing significantly in the coming years,” Magnússon explained. “If that works out they will manage to win back the loss, if not they will have to take the blow. […] I think that is an acceptable risk for the banks.”

Debtors who have used their savings to pay down the capital of their loans have not lost anything, Magnússon assured. “They hold a larger share in their assets and it will take a shorter time for them to obtain full ownership of them.”

Árnason predicted these measures will also have a positive impact on the frozen real estate market.

Click here to read about other solutions for debtors, presented by Íslandsbanki earlier this week, and here to read more about the real estate market.

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