First-time homebuyers in Iceland require over a million krónur monthly to afford average apartment mortgage payments

First-time homebuyers in Iceland need over a million in income to manage mortgage payments for an average apartment. Since the beginning of 2020, monthly earnings for these buyers have increased by 70% to keep up with rising housing costs, while the wage index has only risen by 43% during the same period.

A report from the Housing and Construction Authority reveals that the monthly payment on a 30-year indexed mortgage for an average apartment has jumped from 177,000 Icelandic krónur to 295,000, marking a nearly 70% increase. The burden is even greater on non-indexed loans, where payments have more than doubled from 217,000 to 564,000 krónur.

According to regulations from the Central Bank implemented in 2021, mortgage payments for first-time buyers should not exceed 40% of their disposable income. This means individuals looking to purchase an average apartment with an 85% loan-to-value ratio must earn approximately 1.1 million krónur monthly to afford their mortgage payments.

The report indicates that with the cost of living and housing prices climbing, many households will face increased financial pressure in the coming months and years, particularly as fixed-rate mortgage contracts expire, potentially leading to more payment difficulties.

Although the report notes a rise in mortgage arrears over the past year, it highlights that these are still historic low levels, with little indication of widespread payment difficulties as of now.