Iceland's housing market faces serious uncertainty after major lenders paused inflation-linked mortgages. This decision affects many buyers who already received payment assessments.
Iceland Bank announced today it would stop offering inflation-indexed housing loans with variable rates to individuals. The bank follows two other commercial banks and three pension funds that all halted these loans after a Supreme Court ruling in the so-called Interest Rate Case.
Monika Hjálmtýsdóttir, chair of the real estate agents' association, said working in such uncertainty is difficult. "Those getting approved purchase offers today and planning to apply for loans face a complete stop," she said in a statement. "This is very negative."
Most borrowers choose inflation-linked loans due to current inflation conditions. The situation now hurts most potential buyers. "Inflation-indexed loans are very important in Iceland's housing market given our economic environment," Hjálmtýsdóttir explained. "If they disappeared from the market now, a large portion of buyers would be unable to purchase property."
The finance minister said today that officials are considering how to create interest rate benchmarks for such loans. The housing market cannot withstand the current situation for long. Wealthier buyers now dominate the market alone.
This lending freeze reveals how dependent Iceland's housing market remains on specialized financial products that few other countries use. The sudden halt shows the system's fragility when court decisions disrupt established lending practices.