The Central Bank of Iceland’s Financial Stability Committee (FSN) has amended its borrower-based measures for residential mortgage lending, citing market uncertainty following a Supreme Court decision on 14 October 2025. Lenders have suspended issuance of certain mortgage loan types and are reassessing loan terms, contributing to a temporary reduction in credit supply, particularly for loans with a lighter debt service burden. Under the maximum debt service-to-income rules, the FSN increased the special exemption that allows lenders to issue mortgages above the maximum threshold from 5% to 10% of total residential mortgages issued each quarter, with the percentage calculated based on the immediately preceding quarter. It also raised the maximum loan-to-value (LTV) ratio for first-time buyers from 85% to 90%, while keeping the maximum LTV ratio for other borrowers unchanged at 80%. The committee encouraged credit institutions to use the added flexibility to maintain appropriate credit flows while uncertainty persists.
Central Bank of Iceland 2025-10-31
Central Bank of Iceland loosens mortgage borrower-based limits by raising debt service-to-income exemptions to 10% and first-time buyer LTV cap to 90%
The Central Bank of Iceland's Financial Stability Committee has amended borrower-based measures for residential mortgage lending, increasing the special exemption for mortgages above the maximum debt service-to-income threshold from 5% to 10% and raising the maximum loan-to-value ratio for first-time buyers from 85% to 90%. These changes aim to maintain credit flows amid market uncertainty following a Supreme Court decision.