Variable Interest Rates and Interest Rate Decisions

Following the Supreme Court’s judgment in case no. 55/2024, the Íslandsbanki case, as well as subsequent judgments of the Court concerning consumer mortgage loans with variable interest rates, the Fund has conducted a detailed review of its loan terms in light of the principles set out in those judgments.

In the Fund’s view, the terms of its member mortgage loans are neither comparable to those disputed in the Íslandsbanki case, nor to the terms of the consumer mortgage loans disputed in other cases in which the Supreme Court found such terms to be unlawful.

Unlike in the Íslandsbanki case, the Central Bank of Iceland’s key interest rate (policy rate) is not the decisive factor in the Fund’s decisions regarding interest rate changes, nor are the Fund’s member mortgage loans tied exclusively to that rate. The terms of the Fund’s member mortgage loans also refer to factors such as market yields on government bonds, the cost of loan administration, interest rates on comparable loans in the market, and the Fund’s risk assessment.

The assessment of whether the terms of member mortgage loans may be considered unfair within the meaning of Article 36 c of Act No. 7/1936 on Contracts, Agency and Invalid Legal Acts depends on the circumstances of each case. All circumstances surrounding the conclusion of the contract, as well as the substance of the parties’ agreement at the time it was entered into, must be assessed as a whole. In the Fund’s review of the terms, circumstances and information provided in connection with the granting of member mortgage loans generally, nothing has emerged to suggest that the terms of such loans could be considered unfair within the meaning of Act No. 7/1936.

The wording of the terms of the Fund’s member mortgage loans also contains an exhaustive list of the factors to be considered in decisions on changes to interest rates. In addition, information on the Fund’s authority to change interest rates is presented in a clear and concise manner.

It is therefore the Fund’s assessment that the terms of its member mortgage loans do not contravene either Act No. 118/2016 on Consumer Mortgage Loans or earlier legislation concerning consumer mortgage loans, and that there is therefore no basis for recalculating the interest on member loans.