Icelandic government outlines household debt relief plans

The Icelandic government today signed a declaration of intent with the country’s pension funds and loan providers aimed at tackling the problems of indebted householders.

The declaration allows for the worst positioned householders to reduce their debt by up to 70 percent of the value of their property. A government press release estimates that some 60,000 households could benefit from the new deal.

The declaration of intent was signed at 11.00 this morning in Reykjavik. It is considered an important step, but it is not yet a formal treaty, RUV reports.

The declaration recommends that debts be offset against the value of the house and this could mean that the balance of the mortgage will be cut by 110 percent of the value of the house; leaving the debtor with monthly payments not exceeding a maximum of 20 percent of their earnings. The declaration calls for mortgages to be paid according to the debtors’ ability and for debt over 70 to 100 percent of the house’s value to be paid with a three-year interest free and un-indexed loan.

Loan companies will be required to contact all their customers experiencing payment difficulties and appraise them of all their options. They will likely have to have completed the task of assessing and helping their customers before May next year.

Customers whose monthly loan repayments constitute less than 20 percent of their incomes will not receive government help, Visir.is reported.

The government wants to maintain a special increased rate of interest relief and start a new type of time-limited interest reduction loans which the finance companies and pension funds will fund. It is believed the cost of the project will be around ISK 6 billion (USD 52.3 million) per year for the next two years.

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