The Icelandic financial system is resilient. The systemically important banks’ capital and liquidity are strong, and they have ready access to market-based funding. The banks have taken advantage of favourable conditions to obtain increased long-term foreign funding and retire debt taken on less favourable terms. Their refinancing risk has therefore receded, and the banking system appears well prepared to withstand unexpected shocks.
Geopolitical concerns persist, and there are doubts about fiscal sustainability in many economies. Key asset markets abroad are considered overpriced by most measures. Under such circumstances, there is increased likelihood of an abrupt price correction, which could affect both the domestic financial market and access to foreign credit markets.
Households and businesses are quite resilient overall, partly because of a tight macroprudential policy stance. Debt ratios are low, households’ disposable income has risen significantly, and arrears or financial distress among households and businesses are very limited.
House prices are still high relative to fundamentals such as wages and rent, although the ratio of house prices to both has fallen in the recent term. The housing supply has continued to grow, and the number of months of inventory has increased. The tightening of households’ financial conditions following the Supreme Court’s 14 October judgment on mortgage interest rates has reversed to an extent, partly because of actions taken by the Central Bank’s Financial Stability and Monetary Policy Committees.
In recent weeks, a number of funds have announced plans to invest in residential property together with homebuyers. According to public declarations made by these funds, about one-third of new homes in greater Reykjavík are to be offered under such a joint purchase arrangement. Clearly, this programme is riskier than a conventional home purchase, as the buyer contributes a smaller down payment and accumulates equity more slowly. All else being equal, widespread use of joint purchase arrangements could lead to elevated systemic risk.
The Financial Stability Committee (FSN) is of the opinion that this option could undermine the objectives of the Bank’s borrower-based measures. As a result, the Committee has approved amendments to the Central Bank’s Rules on Maximum Debt Service-to-Income Ratios for Mortgage Loans to Consumers, no. 1130/2025. The calculation of debt service shall take into account all payments made by individuals for the acquisition of housing. This includes payments for the use of the property in connection with the acquisition of housing, even though such payments are deferred. The FSN also emphasises that lenders’ scope was expanded in October 2025, when the exemption authorisation in the aforementioned Rules was increased from 5% to 10% of issued mortgage loans.
The annual review of systemically important financial institutions is complete. The FSN confirmed the systemic importance of Arion Bank, Íslandsbanki, and Landsbankinn and decided that the buffer for systemically important institutions (O-SII buffer) should be held unchanged at 3%. The Committee also decided to hold the countercyclical buffer (CCyB) unchanged at 2.5%, in accordance with its policy on the application of the buffer.
The FSN continues to prioritise increased financial system resilience, including the operational security of payment intermediation. To this end, it approved new rules on oversight of systemically important financial market infrastructure. The rules lay down criteria for determining which infrastructure components shall be considered systemically important in that disruptions to their operations could affect financial stability. They also contain provisions on the execution of the Bank’s oversight of such infrastructure components. Furthermore, the Committee approved rules on a financial infrastructure incident centre, which is to play a key role in ensuring swift and secure exchange of information and a harmonised response to cyber- and operational incidents.
The Committee will continue to apply the policy instruments at its disposal so as to preserve financial stability, thereby enabling the financial system to mediate credit and payments and redistribute risks appropriately.
No. 19/2025
3 December 2025