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Steps towards eliminating the inflation indexation of new consumer loans

The Expert Group on the elimination of inflation-indexation of consumer credit has handed in its proposals. The report proposes that, commencing on 1 January 2015, major steps be taken towards eliminating the inflation indexation of new consumer loans by: 

  • prohibiting the provision of indexed, consumer annuity loans with a term longer than 25 years;
  • extending the minimum term of new indexed consumer loans to up to 10 years;
  • placing restrictions on mortgaging in the case of indexed housing mortgages; and
  • increasing incentives to take out and provide non-indexed credit. 

It is also proposed that an assessment begin, no later than in 2016, of the experience gained from the major steps set out here towards elimination of indexation, followed up by the drafting of a programme for its complete eradication.

All members of the expert group expressed their support for these conclusions with the exception of Vilhjálmur Birgisson, who delivered his own separate report in which he recommends that inflation indexation of new consumer credit be prohibited from July 1st 2014, restraints applied to interest rates and indexation of existing inflation-indexed loans, an investigation made of the actual index calculation of inflation and an independent investigation carried out of the Icelandic pension system.

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