LOANS
Interest subsidy loans
The interest subsidy loan is granted by a bank or other financial institution. The the Housing Finance and Development Centre for Finalnd (ARA) accepts the loan thereby giving the loan a state guarantee and paying the interest subsidies. The interest subsidy loan covers a maximum of 90-95 percent (in the case of acquisition 80 percent) of building costs and price of the plot. The loan must be based on competition and ARA makes a decision on approval on interest rate and margin.
There are two alternatives for the type of repayment of the interest subsidy loan: a loan with a fixed amortization schedule and an index loan of the type of the state housing loan. The loan period with fixed amortization schedule is 40 years and in the index loan approximately 40 years. The alternatives result in exactly similar financial costs, when the interest rate on the loan is 5,5 percent and the inflation 2 percent. The interest subsidy is paid only on the part of interest above 3,4 percent. In the first year the subsidy rate is 95 percent and decreases gradually so that the interest subsidy ends after 23 years.
Social rental housing built with the interest subsidy loans has somewhat higher income limits in tenant selection than social rental housing built with the state housing loan. The ASP Scheme
A separate saving system operates for young people buying their first home. The ASP Scheme can be entered by a person of the age between 18 to 30 years not owning a home. The ASP-scheme consists of pre-saving and a housing loan with interest subsidy. A minimum saving is 15 % of the acquisition price of the dwelling and the minimum saving period is two years. The interest on the saving is 1 % + an additional interest of 2 - 4 % additional interest agreed with the bank. The interest paid on savings is tax free. The ASP loan is interest subsidized by the state during the first six years. The interest subsidy is 70 % of the interest rate above 4.5 percentage points. In addition the loan benefits from mortgage interest deduction. Finland is divided in four different housing markets with varying limits for the maximum loan. Criteria for tenant selection
By virtue of legislation, tenants for ARAVA rental dwellings are selected on the basis of social appropriateness and financial need. More detailed criteria are specified annually by the Government, including the urgency of the applicant's housing need, level of income and property. Priority is given to homeless applicants and to applicants in urgent need of housing. Tenant selection procedures are also determined and supervised by the municipalities. Each municipality is obliged to carry out random checks to ensure that selection criteria have been respected.
The income limits apply to gross income and are set annually by decree depending on family size and region. The limits are reviewed against overall government policies and taking inflation into account. In terms of household income, ARAVA tenants receive a lower average income than the population as a whole.
Despite the fact that the purpose of the Housing Fund of Finland is to promote social housing production, it does not aim to be a dominant party on the housing market but to stabilise the market and to channel funds for target groups and regions depending on demand. In so doing, demand can be secured. Overall, there are significantly more people on waiting lists than there are available dwellings, reflecting strong excess demand for ARAVA housing especially in the major cities. The borrowers
Social rental housing can be produced or acquired by 1) local authorities or other public corporations (i.e. principally Finnish municipalities), 2) corporations that fulfill certain preconditions laid down in regulations each time in force and designated by the competent authority, and 3) limited liability companies of various types in which one or more of the three organisations mentioned above have direct dominant authority. In many cases the limited liability company under dominant authority is a company owned by a Finnish municipality.
The second category corporations may include various borrowers such as organisations for social housing, old age housing associations and student housing associations. These organisations are engaged in providing social housing and they work within legislative framework as defined and set by the ARAVA Act, as amended.
Social rental dwellings are to be used as rental dwellings for 40 years.
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