From Iceland — ASÍ Seeks Restructuring of Mortgage System In Iceland

ASÍ Seeks Restructuring of Mortgage System In Iceland

Published February 8, 2013

The Icelandic Confederation of Labour (ASÍ) is seeking to restructure the mortgage system in the country, proposing the adoption of a model similar to what is being used in Denmark.
In a press release on their website ASÍ outlines their motivations behind suggesting the restructuring, stating that the current mortgage system in Iceland places all of the risk and burden on the borrower, which has prolonged the detrimental effects of the financil collapse for many Icelandic households. The proposed Danish model would see the risks of borrowing shared more evenly between the lenders and borrowers, and would give property buyers the option of favourable, secure long-term loans with fixed interest rates. This system would also abolish the effects of inflation on mortgages in Iceland, RÚV reports.
In Denmark, only mortgage banks are permitted to issue loans against the purchase of real estate. The mortgage banks seek investors to purchase bonds for the strictly appraised value of the property being purchased and the funds paid for the bond are issued to the borrower. The borrower then pays the principle and interest to the mortgage bank, which reimburses the investors. This divides risk between investor and borrower and decreases the likelihood of default.
Following the economic collapse many homeowners in Iceland found themselves unable to keep up with mortgage payments, as their mortgages had either been tied to foreign currencies (and, therefore doubled or tripled when the króna collapsed) or mortgages tied to inflation were increasing at a rate that could not be maintained as salaries have not similarly increased with inflation.
Robbery By Math
Support The Reykjavík Grapevine!
Buy subscriptions, t-shirts and more from our shop right here!

Show Me More!