In recent years, it has become increasingly expensive to live in the Faroe Islands. 

Since inflation, measured by consumer prices, seriously took hold in mid-2020, the purchasing power of most Faroese has decreased considerably. Until the latest simulation, which is per. By May 2025, the consumer price index will rise by almost 20% – a figure that reflects the average increase in goods and services that people spend money on on a daily basis.

However, it is especially within the housing sector that prices have risen significantly. The “Farms” group in the Consumer Price Index has increased by 37.1% over the same period. When we look closely at the individual subgroups, we see:

“Farm”

• Houses and rent payments: +44.9%

• Rent: +50.1%

• Home maintenance: +18.5%

• Electricity and heating: +38.2%

Settlement and rental payments: +44.9%

Rent: +50.1%

Housing Maintenance: +18.5%

Amber and heat: +38.2%

In other words: It has become increasingly expensive to live in the Faroe Islands – although the interest rate as a whole has fallen slightly since 2024.

The burden of carrying the mortgage is heavy

The fact that it has become considerably more expensive to live in Faroe Islands is also reflected in the so-called housing burden, which is a figure that Betri Banki regularly announces. The housing burden is calculated on the basis of a couple with an average income, who has two children and has taken out a 25-year annuity loan. The figure shows how much of your after-tax income goes to pay off your mortgage.

Over the past 10 years, the housing burden in Faroe Islands has increased from about 15% to 30%. In Torshavn it has gone from 25% to 44%. This means that an ordinary couple in the capital spends almost half of their after-tax income on housing loans. The latest figure for the housing burden is from 2023. But although the interest rate has not changed much since then, residential prices are still rising. Therefore, everything indicates that the housing burden is higher today than in 2023.

Residential property prices rise more than disposable income

Other simulations, e.g. from the Bank of Iceland and Statistics Iceland (as of 2023), indicate that residential property prices have risen considerably more than disposable income. We therefore have three measures, all of which point to the same thing: the Faroese is considerably more financially stressed than 8-10 years ago, and the housing market is boiling. There is also no indication that the trend will reverse, because although inflation is falling, this does not mean that prices as a whole will fall.

The big question is whether anything can be done about this big problem that affects the Faroese as a whole. Both Faroese who live in rented apartments and Faroese who own their own homes are more severely restricted than before.

Too expensive to rent

We can now look at the rent prices at Bústøðin, which can be found on bustadir.fo. Here it can be seen that if one rents from Housing and there should be room for a family with 2 children one can rent one of the larger apartments. Here the rent is about 12,000 kr. monthly. At the same time, experience shows that this rent will be increased by 2-5% annually. Recently, more people have complained about their plight because of the high rental costs. For many, this rent is a direct challenge, and it is reflected in everyday life.

Financially difficult to acquire housing

We can also see if it is possible to buy a single house, by paying 12.000 kr. per month. A simple loan calculation with an annuity loan, which has an interest rate of 4.15% and a loan term of up to 25 years, shows that these 12,000 kr. only carry a debt of ISK 2.782 million. Here’s a challenge. If we say that the requirement for equity is 10%, it is possible to buy a house for 3.091 million kr. Finding a house for this amount that does not require substantial repairs is difficult today. In other words, it is financially difficult for many to acquire housing.

The short loan period makes it difficult

One of the main problems today is that the loan period is short. Today we can take a maximum of 30 years of mortgage loans and institutions, such as Bústaðir, also base their rent calculations on such relatively short periods. The big questions are therefore whether the length of a mortgage cannot be extended for 40 years, and whether it is right that Bústaðir bases its calculations on a lifetime of only 30 years. A farm that is regularly maintained usually increases in value and will therefore have a considerably higher value after 30-40 years. This should also be taken into account. Because the price increase is a guarantee for the financial institution and the landlord.

Everything indicates that house prices will also increase in the future

Over the past 38 years, residential property prices have increased by an average of 4.0% annually in Torshavn, in the larger villages by 3.7% and in the smaller villages by an average of 3.5% annually, according to hagstova.fo. Residential property prices have historically risen with inflation – at least – and this is confirmed by these figures from hagstova.fo. There is no reason to believe that residential property prices will not also rise at least with inflation in the future.

A 40-year loan may be one solution

The question is whether mortgages in Faroe Islands, especially for young families buying a house for the first time, could not be extended for 40 years. The price trend in the residential property market clearly strengthens the quality of the mortgage beyond the residential loan.

The next question is whether Bústaðir should not also extend the life expectancy in its calculations. 

Given the historical trend in residential property prices, there is no risk for either the financial institution or the landlord if the loan term or the life of the rental calculations are extended to 40 years, respectively. What is essentially important is that the borrower or tenant is able to pay the loan fee or rent, and that the mortgage for which the loan is granted retains its value. 

Extended loan period significantly reduces the possibility and cost

Several of our neighboring countries provide mortgages for up to 40 years, under certain conditions. So why is this possibility not also being explored in the Faroe Islands? 

With the extended loan period, a loan fee of ISK 12,000 could be paid. per month financed residential buildings, which cost ISK 3.879 million, compared to ISK 3.091 million. mentioned above. This would have strengthened the chances of a single family finding a house to buy. If the family managed to find a farm at a lower cost, and the loan was immediately extended to 40 years, the loan fee would be reduced from ISK 12,000 to ISK 8,970. This corresponds to a reduction of more than ISK 3,000. or just above 25%. This would have significantly reduced the cost of borrowing. If we transfer this to the rental market, a similar reduction in rent could be expected from such an initiative.

Too uniform a housing policy – or is there a housing policy at all?

The next big issue is the housing policy or, to a greater extent, the lack of a housing policy. If farms are not built that young families buying a home for the first time can afford, it will be difficult to get young people to return home. If the trend is not reversed in this regard, it will be very difficult to solve the sustainability problem in our economy, which has been in the spotlight a lot lately.

A good solution encourages migration

Something must be done here – and it is very challenging. It is necessary to lower the temperature of the housing market, so that the Faroese will not be even more crushed, neither as owner nor tenant of housing.

It will therefore also be necessary to prevent emigration to other countries, where the housing market is more diverse, from continuing to grow. It would be a real disaster for society.

A viable solution must be found, and one such could stimulate immigration, which in turn could improve the sustainability problem in the Faroese economy.

Súni Selfoss, chairman

The work association