The Prime Minister and the Ministry of Finance and Economic Affairs, together with the project management team of the principal reduction actions, today announced the outcome of the government's Debt Relief Programme in the conference centre Harpa.
The action has greatest significance for persons with below-average income, who were younger than 40 years of age when the economic collapse occurred, who have little equity in their property and debts of ISK 15-30 million.
Loans will be divided into two parts, the original mortgage portion and the adjustment portion; following the division the debtor will only make payment on the original mortgage portion.
The debt relief reduces the principals of housing mortgages by some ISK 150 billion over the next three years and, if fully utilised, can lower the mortgage principal by as much as 20%.
Through the direct state contribution, all inflation-indexation exceeding 4% in the years 2008-2009 is adjusted completely. The equity position of 56,000 households is directly improved and some 2500 households who previous had no equity in their homes will now have a positive equity position.
The funding period of these actions will be reduced from three years to one. This ensures better utilisation of funds which otherwise would have been interest payments to financial institutions; instead the authorities are able to pay higher amounts to reduce the loan principal. This year ISK 40 billion will be paid towards the loan adjustment portions, ISK 20 billion at the beginning of next year and ISK 20 billion at the beginning of 2016.
The debt relief will therefore reinforce the premises for further growth and lighten households' debt service. Strong growth and low inflation can provide further support to improve the equity position of Icelandic households in coming quarters.
Payments made on mortgage principals from private pension savings will begin at the end of this month and the principal reduction will begin upon confirmation by the debtor in December. Each person can acquaint him- or herself with the outcome of the mortgage principal reduction on the website leidretting.is from 11 November onwards.