For international readers the following information package is provided in english, with the intent of giving an overview of the association’s activities with regards to issues of mortgage and consumer debt illegitimacy.
Since the association was established in 2009, one of it’s key objectives has been to push for a judicial review of the legal standing and rights of homes and homeowner’s experiencing financial difficulties in the aftermath of the financial crisis of 2008 and onwards. Since a large majority of Icelandic homes are self-owned and often financed by mortgage, a considerable share of attention has been focused on issues relating to mortgages and consumer finances in general.
Partial succes in this regard was made in 2010 when the Supreme Court of Iceland ruled that it was illegal to link the value of loans to exchange rates of foreign currencies. This and other subsequent court rulings have led to a significant debt reduction and compensation for consumers with this type of loan contract, which until then constituted a share of over 10% in the mortgage market. Similar terms were also widespread in automobile financing schemes. Because of the sharp devaluation of the Icelandic currency in 2008 and 2009 foreign exchange linked loans experienced a sharp rise in krona terms, causing a severe strain on many households. However, since the ruling, many consumers have had their debt reduced or recieved compensation.
Conversely a large majority of Icelandic home owners or over 80% have mortgage debt in Icelandic currency, tied to the rate of domestic inflation. This type of inflation linked mortgage contract is the most widespread in Iceland but quite uncommon as far as the rest of the world is concerned. Because of high and constantly rising inflation in the years leading up to the crisis of 2008, these loans also did experience a sharp expansions and rising payment burden, imposing severe financial strains on a significan portion of Icelandic homes.
The legality issue has also been raised with regards to inflation linked loans. During the time since at least 2011, The Homes Association has been involved with extensive research on this issue from the perspective of legitimacy, with specific emphasis on consumer protection rules. The regulatory framework for financial consumer protection in Iceland is largely based on implementation of rules that the Icelandic authorities have since 1993 been under obligation to adopt into Icelandic law according to The Agreement on the European Economic Area.
On the basis of this research, a case has been prepared with the objective of testing the legitimacy of inflation indexed mortgages and similar cases have been prepared for other types of consumer loans. This judicial review has now been underway for some time, resulting in several cases that have been started in the district courts of Iceland. These cases are expected to enter proceedings early in 2015, and a subsequent appeal process to the Supreme Court may be expected to extend the legal procedures until later that year. Under these circumstances it is to early to make strong assumptions. However an advisory opinion of the EFTA-court in november 2014 indicates that there is at least reasonable doubt, which must now be resolved by the domestic courts.
The Homes Association, Iceland 2015