General information on government guarantee for housing loans
A government guarantee can be granted for a home ownership loan that is used to purchase at least half of a home. The home may be an apartment, detached house or a detached house that that is being built. The home must be as a permanent dwelling of the borrower.
A government-guaranteed home ownership loan can be granted for the purchase of non-subsidised or ASP-funded homes.
The amount of the home ownership loan may be up to 85 per cent of the purchase price of the home or 90 per cent of the purchase price if the borrower is utilising an ASP interest subsidy loan.
The borrower does not need to apply for the state guarantee separately. Instead, it will be agreed with the bank upon in the loan negotiations in connection with granting the housing loan. The government guarantee must be agreed upon before the sale or construction begins, and it cannot be added to the loan afterwards.
Conditions for the borrower
A government guarantee for a housing loan can be granted to a private person who acquires a home for themselves or for their family as to be used as the primary dwelling.
A foreign citizen can also receive a guarantee if they are acquiring a home in Finland. The person must reside in Finland long-term and have a Finnish personal identity code. However, the person does not need a permanent residence permit, but it must be a longer-term residence permit.
The borrower does not need to be a first home buyer; it is possible to receive a government guarantee even if the borrower has already owned a home either in Finland or abroad.
Maximum loan period
The maximum loan period for a home ownership loan guaranteed by the government is 25 years from the date on which the loan or its first instalment was withdrawn. If the borrower takes a new loan to replace the home ownership loan, the maximum loan period is deemed to start from the withdrawal of the original loan or its first instalment.
At the request of the borrower, the bank may extend the loan period to a maximum of 27 years. Extension is only possible if the borrower’s ability to pay the loan has significantly deteriorated due to, for example, an illness, unemployment, or other comparable reason.
The bank must notify the State Treasury of any extensions to the loan period. The extension of the loan period must be thoroughly documented, and the documents retained until the loan has been repaid in full.
The regulation on maximum loan periods entered into force on 1 May 2006. Previous legislation applies to loan periods of home ownership loans withdrawn before this date.
Amount of the government guarantee
The maximum amount of the government guarantee is 20 per cent of the remaining loan capital. In the case of an ASP interest subsidy loan, the government guarantee may be up to 25 per cent. The amount of the guarantee in euros will decrease as the loan is repaid in instalments. The percentage of the guarantee remains the same at all times.
The government’s liability for capital allocated to a home does not exceed EUR 60,000 in total. If a home ownership loan of more than EUR 300,000 is granted and the government guarantee is used for the maximum, EUR 60,000, the guarantee’s share of the loan will be less than 20 per cent. The actual percentage of the guarantee is used to determine the remaining amount of the government guarantee in euros.
If the euro amount of the guarantee does not correspond to the percentage of the loan indicated in the bond, the actual percentage based on the euro amount of the guarantee shall be used.
A guarantee fee for the government guarantee is charged in connection with withdrawing the loan or the first instalment of the loan. The fee is 2.5 per cent of the amount of the government guarantee. No guarantee fee is charged for ASP interest subsidy loans.
An example of the guarantee fee:
Purchase price of the home EUR 100,000 Home ownership loan (85% of the purchase price) EUR 85,000 Amount of the government guarantee (up to 20% of the amount of the loan) EUR 17,000 Guarantee fee (2.5% of the amount of the government guarantee) EUR 425
Purpose of the loan
The borrower is eligible for the government guarantee only when building a detached house or purchasing a home. A government guarantee cannot be granted for a loan that is used to fund
- the right-of-occupancy fee for right-of-occupancy housing
- a renovation or basic improvements
- a complementary building or extensions.
Government guarantees are only available for remodelling if the cost corresponds to the costs of building a similar new building. This may be the case when the foundation of an old building is utilised for a new building.
Government guarantees are only granted for the purchase of a permanent dwelling. A part of the apartment may be given to the use of a person who is not a family member, as long as most of the apartment is used by the owner. A person may only have one permanent dwelling.
Loans for purchasing a second residence or an investment property are not eligible for the government guarantee. Investment properties include for example student apartments registered in the parents’ name or apartments rented to non-family members.
Conditions regarding the apartment
The borrower must acquire at least 50 per cent of a detached house, a detached house to be built, or shares or stakes entitling to the possession of an apartment.
A home purchased using the home ownership loan must be located in Finland. The home may not, however, be located in Åland, which has its own guarantee system.
The home must be located in an area where all-year residence is allowed.
The government guarantee is available for shares or stakes in a housing company, housing co-operative or mutual real estate corporation. It cannot, however, be granted for shares in a real estate corporation.
A parking space serving the use of the home may be connected to the apartment if it is bought at the same time as the home. Parking spaces bought at the same time as the home may amount to a maximum of one parking space per borrower.
A detached house is a building with only living quarters. It may include an outbuilding, sauna, garage or other premises closely related to living, if they are minor in relation to the size of the detached house.
If the real estate to be bought includes, for example, a horse stable, hall building or other premises that are not connected to housing, their share must be itemised in the bill of sale. They cannot be funded using a home ownership loan with a government guarantee.
Any premises that are not in residential use at the time of the purchase (e.g., summer cottages, schools or commercial premises) cannot be considered detached houses. The use must be altered by the seller before the apartment is acquired using the home ownership loan. Any alterations of the use by the purchaser bear no significance on the matter.
Purchasing a shared home
Building a home
Building a detached house
The cost estimate for the construction of a detached house provided to the bank is considered the purchase price of the detached house. The estimate should be calculated realistically because an approved cost estimate may not be changed afterwards. If the construction costs increase during the construction period, other funds or other loans must be used to finance the extra costs.
The proportion of one’s own work is not included in the cost estimate, because it does not add to the amount of the required loan.
The purchase price of a plot may be included in the estimate, if the plot is acquired as part of the construction project and funded with a loan that is both withdrawn at the same time and a government guarantee is applied to it. In this event, construction must start without delay after purchasing the plot.
The bank must monitor the progress of the construction project and link the withdrawal of new instalments to the progress of the construction work. The bank must retain any certificates of work phases or other evidence of contact with the parties implementing the construction project or the municipal building control authorities. If the need for a loan proves to be lower than the cost estimate, only the required amount of the home ownership loan may be withdrawn.
A condominium loan share can be deemed a part of the purchase price of an apartment if the loan is recorded in the bill of sale or documented in another reliable way in writing. The prerequisite is that the share is paid to the condominium as soon as possible.
The condominium loan share must be valued to the apartment in accordance with the terms specified in the articles of association of the condominium. The total funding must be agreed at the time of the sale.
Any fixed additional and renovation work directly related to the apartment and commissioned by the purchaser can be calculated as part of the overall price of the apartment. The bank must verify the renovation work in a reliable manner, and the documents verifying the renovation work must be attached to the bill of sale.
The use of the government guarantee for sections of the loan withdrawn at a later time must be agreed in the loan negotiations at the time of the start of construction. This means that the government guarantee cannot be applied to the loan after the loan has been withdrawn. Even if the initial equity is funded using the borrowers own funds, the final loan must be agreed when own funds are used to start the project and construction starts.
Government guarantees cannot be applied to loans that are used for the funding of initial equity required by joint construction projects in housing company form. The government guarantee can, however, be applied to the section of the company loan paid after the building is finished.
The bank must contact the State Treasury before applying the government guarantee to housing loans concerning other types of joint building projects.
Repaying the loan and instalment-free periods
If the government guarantee covers only part of the borrower’s mortgage, loan instalments must first be used for the government-guaranteed loan.
Instalment-free periods cannot be granted for government-guaranteed loans in such a way that only the “additional loan” (which does not involve a government guarantee) is repaid. The additional loan is a loan separate from a government-guaranteed home ownership loan with a separate instalment plan and collateral arrangement independent of the government-guaranteed loan.
The duration of instalment-free periods for a government-guaranteed loan is not limited as long as the total loan period is no more than 25 years. Within the total loan period, the bank and the borrower may freely agree on instalment-free periods. However, the instalment plan must be realistic.
At the borrower’s request during the loan period, the bank may also extend the loan period to a maximum of 27 years if the borrower’s ability to manage the loan has significantly deteriorated due to illness, unemployment or other comparable reasons.
If a government-guaranteed loan is transferred from one credit institution to another, the new credit institution must be notified of any granted instalment-free periods.
The bank granting the loan is obliged to retain any documents related to the assessment of the borrower until the loan has been repaid. The bank must retain documents such as solvency calculations and evidence of the applicant’s income, expenses, liabilities and credit information. The bank must present the requested documents to the State Treasury when requested.
Both the bank granting the loan and the borrower have a legal obligation to provide information to the State Treasury. The bank must notify the State Treasury of the loan, its terms and conditions and any subsequent changes to the terms and conditions, as well as the borrower’s payment delays and the debt collection measures caused by this. The bank and the borrower are obliged to provide the State Treasury with information that it considers necessary for the supervision of government guarantees.
A government-guaranteed home ownership loan must have one of the following as the primary collateral:
- shares or stakes entitling to the possession of the dwelling for which the loan is granted
- pledge on the property for which the loan is granted
- other equally valuable physical collateral.
The collateral must cover the entire loan amount. If the collateral is insufficient to cover the whole loan, the exceeding part must be broken down into a separate loan without a government guarantee.
When assessing the assets to be provided as collateral, the bank shall ensure that:
- the evaluator is independent of the granting of the credit
- reliable, standard-based procedures are used in the evaluation.
The collateral must have higher priority in the government-guarantee loan than any other liability of the borrower. The collateral must have the highest priority. A mortgage collateral of lease receivable must have a lower priority.
The collateral must be pledged as a special pledge, i.e., the collateral must be pledged with a unique loan number as a collateral of a government-guaranteed loan.
The government guarantee cannot be applied to a loan with a secondary pledge as the collateral. Granting a secondary pledge on the collateral of a government-guaranteed loan is possible once the housing loan has been repaid until the value of the collateral is sufficient. In this case, it must be ensured that such receivables have lower priority than the housing loan.
Capitalisation of collaterals
The bank must manage the government-guaranteed loan and its collaterals in accordance with applicable legislation, the resulting statutes and regulations as well as good banking practice. For example, in the event of a payment default, measures must be taken according to good banking practices and debt collection practices.
If the assets pledged as collateral of the loan are capitalised, the bank must protect the interest of the state. The proceeds from the sale must first be used to cover the government-guaranteed share of the loan. This must be indicated in the loan agreement.
The bank may also use some of the proceeds to cover necessary costs accrued by the maintenance and sale of the collateral. However, these costs must be reasonable. The proceeds cannot be used, for example, for legal costs or other costs arising from the processing of the case.
The bank must ensure that the subject of the collateral is insured for its full value. The building and the fixtures of the home must be insured.
The insurance taken out on property must cover any damage usually covered by comprehensive coverage. These include instances such as natural phenomena and leaky pipes, in addition to fire damage. This must also be stated in the terms of the contract for cover.
Housing companies’ real estate insurances usually only cover the building. At the time of granting the loan, the bank must require that the person withdrawing the loan insures the fixtures of the apartment insofar as they are not covered by the real estate insurance taken out by the housing company. This must also be stated in the terms of the contract for cover.
Transferring the loan
A government-guaranteed loan may be transferred to a new home if it will be used as the permanent dwelling of the borrower. The borrower must own at least 50 per cent of the new home. The new home must be purchased within a reasonable time from the sale of the old home.
Up to 85 per cent of the purchase price of the new home may be covered by the government-guaranteed home ownership loan. The government guarantee may account for up to 20 per cent of the remaining principal of the home ownership loan.
The existing loan must be transferred to the new home as is in terms of the amount of principal and guarantees. If the original loan amount is under the maximum of 85 per cent, the borrower may receive more government guaranteed loan up to the maximum amount when transferring the loan. The bank must ensure that the maximum amount of the guarantee is not exceeded.
The government guarantee is a secondary collateral. The government will pay the bank a legal guarantee compensation if the borrower is unable to repay the loan to the bank and the selling price of the home does not cover the bank’s claims.
In any debt collection situation, the selling price obtained for the home must first be used to pay the government-guaranteed loan.
If there are two borrowers, the selling price shall be divided according to the borrowers’ ownership shares and first used to set off the share of borrowers’ own loans. Any excess of the payment shall be used to pay the other party’s loan if the loan has a government guarantee. If the government-guaranteed loan has not yet been fully repaid after this, the bank may apply for compensation from the State Treasury on the basis of the government guarantee.
A and B own 50% and 50% of an apartment. A has EUR 55,000 of government-guaranteed loan left, and B has EUR 40,000 of a housing loan left. There is no government guarantee on B’s loan.
When the apartment is sold, they obtain EUR 90,000. In a debt collection situation, the payment is first divided according to the holdings, in which case A’s share is EUR 45,000 and B’s share EUR 45,000. A’s share is first used to set off their government-guaranteed loan, which leaves them with a loan amount of EUR 10,000.
Then, EUR 5,000 (EUR 45,000 – EUR,40,000) left over from B’s repayment is used to pay A’s loan. After this, A will have to pay the leftover amount of EUR 5,000. Of this amount, the bank may apply for compensation from the State Treasury on the basis of the government guarantee.
Applying for guarantee compensation
The bank may apply for compensation once the final losses have been resolved after the insolvency of the debtor and the sale of the collateral assets, and the sale price from the collateral is under the amount of the remaining government-guaranteed loan. Compensation must be applied for without delay when the conditions for submitting an application for compensation have been met.
The application for guarantee compensation can be delivered to the State Treasury using a form (in Finnish). The bank can also apply for guarantee compensation with a free-form written application, which must include all the information requested on the application form. The application must be filled in carefully and all necessary documents must be attached to it.
Payment of guarantee compensation and the loan granter’s obligation to refund payments
The maximum amount of guarantee compensation paid is the sum applied for, and the compensation may not exceed the amount of the bank’s actual loss. However, the maximum amount of compensation is the amount of the government guarantee at the time of capitalisation if the bank’s credit loss is greater than this.
The government is only liable for unpaid interest and interest on late payment to the extent concerning the portion of the loan guaranteed by the government. The government is responsible for interest and late payment interest for the same period and on the same basis as the debtor.
Compensation may be waived or reduced in the event of non-compliance with the law, provisions issued under the law or violations of good banking practice and if the violation has led to an infringement on government interests.
If the bank receives instalments and interest from the borrower after the payment of guarantee compensation, it is legally obliged to refund the State Treasury a portion corresponding to the government guarantee. The lender must contact the State Treasury before payment: email@example.com. The State Treasury will provide payment instructions for the refund.
Right of recourse
The State Treasury collects guarantee compensation paid to the bank from the borrower. Interest on late payment will be charged on the compensation amount in accordance with the Interest Act (633/1982).
The right of recourse must be recorded in the loan agreement.
Waiving a recourse receivable
A claim for a recourse receivable based on the guarantee compensation paid to the bank may be waived for anyone who cannot reasonably be considered to be able to pay due to permanent incapacity for work, long-term unemployment, liability for maintenance or other comparable reasons can be applied from the State Treasury.
Incapacity for work, unemployment or liability for maintenance referred to in the Act does not, as such, relieve the person of the payment of a recourse receivable. Instead, the applicant must provide evidence that they are reasonably not able to pay due to a reason specified in the Act or other comparable reason. The State Treasury shall make a decision based on overall consideration.
The borrower can apply for the waiving of a recourse receivable using a form (in Finnish) or by a free form written application that must include all the information requested in the application form. The applicant must deliver the necessary documentation on the applicant’s financial situation to The State Treasury for the processing of the waiver application. The applicant must submit evidence that supports the facts presented in the application.