News - 02.12.2025

Encouragement for the Central Bank to Ease Borrower Requirements

Each time new inflation figures are released or a decision is made on interest rates, the obvious becomes even clearer: housing is the single most influential factor in the economy. It causes significant fluctuations in the Icelandic economy, resulting in uncertainty and costs—both for wage earners who need housing and for the companies that build it. For this reason, housing issues must be elevated out of the realm of emergency projects and short-term measures and instead be addressed through long-term policy planning based on solid and reliable data.

The Underlying Problem Remains Unsolved

The state and municipalities play a key role in housing, but they have failed to ensure development that meets the needs of a rapidly growing society. At the same time, the Central Bank has responded to inflation with tight monetary policy and strict borrower requirements, which have significantly reduced people's ability to purchase their own homes. Young people are increasingly relying on financial support from their parents to put a roof over their heads, but it is clear that not all young people have such support. Those left behind will face the consequences for a long time to come.

The Central Bank's Financial Stability Committee recently held an extraordinary meeting—which is unusual—and eased borrower requirements after a court ruling on interest rates for housing loans. The easing made little difference. The same can be said about the most recent interest rate cut, which was a step in the right direction, but the Central Bank made it clear that the cut was due to the banks raising rates following the court ruling, rather than being part of a long-awaited and necessary interest rate reduction process. This is certainly not enough to solve the underlying problem.

A Need for Diverse Measures

Strict borrower requirements are pushing more people into the rental market, increasing pressure on a market that is already strained. If rent increases, it directly impacts inflation—both due to rented housing and due to imputed rent, which is the cost of living in one’s own home. In order to achieve stability in the housing market, develop a strong rental market, and ensure housing construction in line with the diverse needs of society, a wide range of measures is needed in cooperation with all parties. While we await the implementation of the first housing package and the development of the second one, the Central Bank needs to further ease borrower requirements for first-time buyers so that more people have the opportunity to buy a home. Easing borrower requirements is not a magic solution, but it is one of the many necessary measures that must be taken to achieve long-awaited stability in housing development and to ensure that younger generations have equal opportunities to own their own home.

The Central Bank’s Financial Stability Committee meets tomorrow, and we urge the Central Bank to take this step.

Halla Gunnarsdóttir, Leader of VR
Sigurður Hannesson, CEO of the Federation of Icelandic Industries

This article was originally published on visir.is on December 2, 2025.