In an article published in an interview with Olli Rehn, which dealt extensively with the post-financial crisis debt growth. In the interview, Rehn highlighted the correlation between the rise of the recession and household indebtedness. Now it has finally been said by someone.
The role of instant messengers, consumer credit and credit cards as drivers of growth has been obvious. The same trend of indebtedness can be seen in our western neighbor Sweden. In both countries, household indebtedness has been strong in recent years.
“- The indebtedness of Finnish households is at a record level when used as a measure of debt relative to annual income. At the turn of the millennium, debt was well over 60 percent, now 128 percent, ”says Olli Rehn.
Household incomes are increasingly being used as housing costs
Low-income people are, of course, the first to feel the increase in fixed costs. However, suction in growth centers is often achieved through large housing company loans. New homes are traded for a small fee and for the first two years of repayment leave. After two years, the loan management costs are already quite high in an average 400k USD apartment.
Everyday expenses and purchases will be financed by credit cards and interest-bearing financing options in your wallet. Bank loans and credit cards are in the pipeline, additional spending is ultimately financed by instant loans and instant loans. Anything else goes towards financing the increased standard of living.
The equation cannot stand the setbacks to the personal income that everyone had to experience in bad years. Weak financial years were spent on hand-to-mouth and closing gaps in credit cards and consumer credit. At the same time, the dollar area was revived by central banks.
“The stimulative monetary policy has been justified in order to avoid a deep recession and deflation. One had to realize that it had its own consequences. The challenge now is to ensure that households are able to properly assess their borrowing capacity. ”
“- The biggest concern is that mortgage loans are used to market new homes at a relatively low cost. In a few year’s time, a single-family will be able to pay off both full financial consideration and substantially higher interest rates. ”
Without a positive credit record
The problem will escalate with the coming recession. And it’s already at hand. The gradual rise in dollar area interest rates, coupled with weak Finnish competitiveness, will continue to cause labor market shocks. These shocks will continue to shake debtors in an unprecedented way. Accustomed housing prices are at risk when you have to give up a home that is too expensive, dictated by necessity.
The debt burden can trigger a domino effect that goes to the heart of banks through the housing and mortgage markets. Big mortgages can peel off the junk that shakes the banking sector. The Good Finance banks and the housing market are linked through financing. Indeed, this time the financial crisis can start with private households.