Young people did not cause the economic disaster but they will pay for it.
Those who are around thirty today and have bought a home have either taken 70-80% loans that carry price indexation or in a different currency.
Price indexation is great for the loan-provider, either a bank or the Housing Financing Fund. But it sucks for the borrower who must add inflation to his home-loan. Iceland is the only country in Europe that still has its inhabitants suffer the fate of the loan rising substantially every year. For example, a home loan of around 16.5 million ISK taken two years ago is now around 18.5 million, even though the owner has paid around 2.5 million. This is with an inflation of 12-15%. Now the inflation is uncertain but the latest forecast has it around 20-70%.
Phew!
It also became hip to gamble on the rise and the fall of the krona. Around 15% of the population re-financed in foreign currencies. A year ago the krona was worth 58 USD and about 85 EUR. Today they are twice as much. You do the math on how a home loan worth 16.5 ISK a year ago taken in USD looks today. You don’t have a calculator, ok here goes…33.5 million ISK.
For those under the age of thirty… it would be madness to consider buying a home in this market for the foreseeable future.
So Icelandic homes are basically going bankrupt unless something dramatic will happen soon.
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October 26th, 2008 → 5:42 pm @ Dadi
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