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FME issues rules on maximum loan-to-value ratios

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The Financial Supervisory Authority (FME) has issued rules limiting the loan-to-value ratio of new residential mortgages in accordance with Article 25(1) of Act No. 118/2016 on Consumer Mortgages. In accordance with the Rules entering into force, the maximum loan-to-value ratio will be 85% of a property’s market price. However, first-time home buyers may be granted loans of up to 90% of the market price in accordance with Article 25(2) of the Consumer Mortgage Act. The purpose of the rules is to maintain financial stability in light of growing imbalances in the housing market and to strengthen the resilience of lenders and borrowers with respect to the possibility of falling property prices.

The Financial Stability Council (FSC) has given its opinion on the rules, dated 20th June 2017. In the opinion, FSC endorses FME’s recommendations and reaffirms that the current state of the housing market gives reason to consider the resilience of both lenders and borrowers. According to FSC, the rules are well suited to respond to conditions that could
threaten financial stability or unduly affect the financial system.

Regulator Information

Abbreviation: FME IS
Jurisdiction: Iceland

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