The Uncertain Future

Iceland seems to be doing well all things considered especially when compared to economies such as Spain, Greece and Portugal.

It has repaid in ahead of schedule monies owe to the IMF. Growth for the year 2012 was approximately 2.5% as can be seen below, which in comparison to other developed countries is above average for post 2008 recession. The unemployment rate has also fallen by half; just below 5%. The investment ratings for Iceland were also restored by February of 2012, (IMF Report 2012).

In comparison to the rest of the developed world, Iceland’s recovery is very interesting and quite shocking due to their unorthodox approaches used to tackle the situation. It was the only country to allow its big 3 banks to fail of which the bank were later split up into smaller divisions.

The people affected are still at unease. They now have mortgages to repay that they certainly cannot afford. Since interest rates were so high in Iceland, the trend became to borrow in the foreign market and save in the local one. Therefore, in the aftermath of the Icelandic crisis and a deflated currency, many home owners now have mortgages that are too high in comparison to the value of the house.

As on family The Magnusson's quoted, "I've been paying every month for 150 months and I owe much more than I borrowed," says IT specialist and reindeer hunter Theodor Magnusson. "I borrowed 6m Krona (£28,850) and I now owe 9.7m Krona (£46,642). And I've already paid around 5m Krona (£24,000) in these twelve-and-a-half years," (Lynam, J. 2013). This coupled with increased taxes and salaries being frozen or not moving by any significant amounts is enough to cause a strain on the people.

Another area of concern is the current housing prices which are almost back to the same level as they were pre 2008 crisis just 1.7% below their 2008 values, (McCormack, R. 2011).This is a bit worrying since, Iceland’s house prices did not fall as much in comparison to other countries experiencing a housing bubble. Furthermore, housing bonds seem to be increasing in popularity since it is one of the few long term investment avenues available in Iceland. The Housing Finance Fund (HFF) was set up by the Government tocover about 60% of Iceland's mortgage market. However, the new banks that emerged from the failed banks are currently trying to expand their market share thereby increasing competition and the Housing Finance fund according to Moody's is at increased risk of missing future payments to creditors.

A Senior analyst at Moody’s by name of Oscar Heemskerk, told Bloomberg that; “The risk is that there may potentially be a default at the Housing Finance Fund, which is not paid for in time by the government.” However, according to Heemskerk, it is in the best interests for the Government  to act as guarantee and as a consequence, investor monies would be safe, (McCormack, R. 2011).