The Central Bank of Iceland published its quarterly lending survey of the four commercial banks, showing that banks reported a contraction in the supply of residential mortgages to households over the previous three months, while expecting a marginal increase in mortgage supply over the coming six months. Banks also reported a slight downturn in household mortgage demand, with expectations for demand to remain broadly unchanged, and described broadly stable conditions in corporate lending, alongside easing interest rates linked to reductions in the Central Bank’s key interest rate. The survey links the pullback in mortgage supply to the Supreme Court’s October 2025 judgment in the “interest rate case”, which banks said reduced pricing flexibility, particularly for inflation-indexed loans. Lending rules for both households and corporates were reported unchanged and expected to remain unchanged, although banks anticipate marginally stronger competition for household lending. On pricing, banks reported slight rises in interest rates and premia on inflation-indexed household loans driven mainly by regulatory changes, while rates on non-indexed household loans fell, with further declines expected for non-indexed mortgages as key rates are expected to fall, noting that the European Union’s third Capital Requirements Regulation (CRR3) was incorporated into Icelandic law at year-end 2025 and may affect loan pricing through changes in lending-related reserve requirements. For corporates, króna-denominated loan supply was reported stable while foreign-denominated lending to large companies increased, with demand for foreign-denominated financing also rising marginally; banks expect slight declines in demand for króna-denominated corporate loans and continued marginal increases in large firms’ foreign-denominated borrowing, alongside broadly unchanged credit standards and mostly stable interest premia. The results are based on average responses collected during 2-14 January 2026 and include banks’ assessments of credit supply and demand, lending terms, interest rates and premia over the prior three months and expectations for the next six months.
Central Bank of Iceland 2026-01-26
Central Bank of Iceland lending survey shows mortgage supply tightened after Supreme Court interest rate ruling and points to further falls in non-indexed rates
The Central Bank of Iceland's quarterly lending survey shows a contraction in residential mortgage supply and a slight downturn in demand, with expectations for marginal supply increases and stable demand over the next six months. Changes in mortgage pricing are attributed to regulatory impacts, including the Supreme Court's October 2025 judgment and the incorporation of the EU's third Capital Requirements Regulation into Icelandic law.