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Finnish FSA cuts loan-to-collateral ratio to 85%

Finland's Financial Supervisory Authority cut the maximum loan-to-collateral ratio — the amount of the loan compared to the value of the asset purchased with it — on loans by 5 percentage points to 85% to curb the country's "exceptional" household debt accumulation.

This new ratio comes into effect July 1 and excludes first-home loans, which will continue to have an LTC ratio of 95%, the regulator said.

The Finnish FSA said the reason for the move was that the country's household debt ratio stood at 128% in the third quarter of 2017 due to a rise in housing loans and housing corporation loans as well as the stock of consumer credit.

The regulator asked lenders to avoid long loan-repayment periods and long interest-only periods, except for special reasons.

The high household debt in Finland "increases the risks to the housing market and to the economy as a whole," Anneli Tuominen, director general of the Finnish Financial Supervisory Authority, said.