What are state-subsidized mortgages?

State-subsidized mortgages [hlutdeildarlán in Icelandic] are a special type of loan which the Housing and Construction Authority provides to people buying their first properties, or to people whose income and assets fall below a certain threshold. State-subsidized mortgages don’t bear interest and there are no mortgage repayments.

State-subsidized mortgages are only provided to buy new apartments where an agreement is in place between the Housing and Construction Authority and the relevant construction company. In some cases, it’s possible to get a loan for older apartments which have been renovated so that they are as good as new. On real estate websites, it’s often possible to opt to see only properties which are eligible for state-subsidized mortgages.

Financing a property with a state-subsidized mortgage works as follows:

• 5% buyer’s own funds, i.e. down payment
• 20% state-subsidized mortgage
• 75% mortgage

If the buyer has a down payment of more than 6.5%, the state-subsidized mortgage decreases proportionally.

How is the loan repaid?

The loan is repaid when the property is sold, and if the property has increased in value, the loan is repaid in the same proportion as when the loan was taken.

Let’s take an example:

A property is bought for ISK 50 million. A state-subsidized mortgage is provided for ISK 10 million. The property is sold five years later for ISK 55 million and the state-subsidized mortgage is repaid for ISK 11 million. If the property has not been sold within 10 years, the loan period ends and the loan needs to be repaid. It’s possible to apply for a loan extension for five years at a time, but the loan has to be repaid within 25 years.