June 2002
Housing Financing Fund Monthly
Report June 2002
A minor decrease took place in the number of applications
received by the Housing Financing Fund in June 2002 compared
with the same month in 2001. However, the number of approved
exchanges of Mortgage Bonds for Housing Bonds was greater, and
their amount was 15% higher over the period. The amount of
approved exchanges is 18% higher over the first six months of
this year compared with the first half of 2001, after the loan
ceiling was raised by 20% in mid-2001. Sometimes the approved
exchange amount is mistakenly assumed to be the same as the
amount of Housing Bond issues, but this is not the case. An
approved exchange does not take the form of a Housing Bond
issue until the exchange has been made. Thus approved
exchanges in the first half of 2002 amount to just under ISK
16.5 billion króna while Housing Bond issues have been only
ISK 15.6 billion. Two reasons may explain this discrepancy.
One is faster and more efficient handling by the Housing
Financing Fund (a shorter waiting time) and the other is
growing difficulties in the completion of real estate
transactions,
for
example
due
to
scope
for
providing
collateral, the high market discounting rate on Housing Bonds,
and deals that fall through.
Housing
Financing
Fund
forecasts
assumed
that
4,500
applications would be received in the first half of 2002 with
an average Mortgage Bond amount of ISK 3.25 million, to put
total first-half Housing Bond issues in the range ISK 14.5 to
15 billion. The actual outcome was 4,839 applications, an
average amount of just under ISK 3.3 million and total Housing
Bond issues of ISK 15.6 billion as reported above. Housing
Bond issues are therefore around ISK 1 billion higher than
forecast by the Fund, while Mortgage Bond issues have been ISK
1 billion lower than assumed in the Fund’s forecasts from
December 2001. Consequently, total lending by the Housing
Financing Fund is in line with its forecasts.
Despite hopes for a lower issue amount, the Fund’s bond issues
it have by no means exploded, as has unwarrantedly been
claimed by finance companies and the media. The fact is that
the growth in supply, over and above expectations of capital
market participants, primarily involves a huge increase in
bank and corporate bond issues. Large and steady issues by the
Housing Financing Fund in the recent term, reflecting brisk
trading in the real estate market, have admittedly played some
part in keeping the required return in the bonds market at its
current high level, with a correspondingly high discounting
rate on Housing Bonds. However, it is worth pondering whether
Iceland’s lively real estate market has not helped to engineer
a softer landing for the economy than would otherwise have
been the case, so that its overall effect is a beneficial one.
Nonetheless, the Housing Financing Fund agrees with capital
market players that the time has come for real estate market
activity to slow down.
On the demand side of the capital market, the commercial banks
deserve praise for their work in promotion and sale of
Icelandic bonds to foreign investors. So far in 2002 this work
appears to have produced great results and it is obvious that
that required returns and market discounting rates on bonds
would be much higher today if this boost had not been given to
the demand side. The Housing Financing Fund hopes that the
banks will continue their dynamic and noteworthy work in this
field.
The average Mortgage Bond amount in June 2002 was just under
ISK 3.4 million. The average bond amount for the year is
therefore just under ISK 3.3 million, compared with the Fund’s
forecast of ISK 3.25 million. Quarterly average figures show
that the average bond amount is on the decrease, which is
consistent with the relative increase in older housing as the
year wears on. It should be pointed out, however, that these
statistics are quite sensitive. The Housing Financing Fund
therefore sees no grounds for altering its assumption for an
average bond amount of ISK 3.25 million, except to say that
the figure could lie in the range ISK 3.25 to 3.3 million.
Supplementary loans are still on the increase and disbursals
in June amounted to almost ISK 400 million. The correlation
with supplementary loans is perhaps the main reason that
Housing Bond issues are running higher than has been hoped and
forecast.
Judging
from
reports
by
municipal
housing
committees, there is little likelihood of a reduction in this
category in the next few months. Far from it. A special
examination of supplementary loan allocations is pending, to
study whether their purpose and objectives are being achieved
in
full.
More
than
5,000
families
have
already
had
supplementary loans disbursed in the little more than three
years that the Housing Financing Fund has been operational,
while around 10,000 families were in the old social housing
system which was abolished when the Housing Financing Fund was
established.
Loans for rental accommodation, however, are still some way
short of the Fund’s forecasts, which could be the result of a
slow-down in construction activity. Allocations are in the
pipeline in accordance with the treasury budget, but some
authorizations remain unused and in some cases building has
2
still not
given.
yet
begun
even
when
a
loan
commitment
has
been
Prepayments amounted to ISK 145 million in the Housing Bond
system in June 2002 and ISK 257 million in the old State
Housing Agency Fund, making a total of ISK 400 million. Loan
transfers from the old fund to the Housing Bond system may
have begun after the recent abolition of the municipal
authorities’ obligation to buy back properties in the old
social housing system. This should mean more Housing Bond
issues and less issues of Mortgage Bonds. On the whole, this
will presumably have a beneficial impact on the Housing
Financing Fund’s liquidity and prove favourable for the
financial market.
Customer arrears with the Housing Financing Fund showed a
slight increase in June, but are still lower than was
customary. At the beginning of next month the arrears position
is likely to be even lower, when annual settlements are made
with mortgage interest rebates through the tax system.
In the third week of June, the Housing Financing Fund will
publish its revised forecast for Housing Bond and Mortgage
Bond issues, which will be projected twelve months into the
future for the first time. The Housing Financing Fund plans to
review and publish all its forecasts at three-month intervals,
for the following 12 months in all cases. It is also planned
to publish estimated the Fund’s cash flow over the same period
in each instance.
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