Björn Berg answers questions by the readers of online news outlet Vísir.

A 17-year-old woman asks:

You will need to buy a home.

That’s how it has been in Iceland, and that’s probably how it will continue to be. Getting stuck in the rental market is hardly an attractive long-term option if you want to build a reasonably secure financial future.

The good news is that even though buying a first home is a very big step, especially today, it’s absolutely possible.

The average age of first-time buyers in Iceland is currently around 29. A year earlier it was 30, and in 2023 it was 31. If we look further back, the average age was 30 at the end of 2020 and 31 in both 2015 and 2010.

So this has always been difficult.

But several things have made the first step onto the housing market feel even harder in recent years. Fast house price increases after Covid meant prices could rise more quickly than people could save for a down payment. Sharp interest rate increases, stricter loan rules and a recent court ruling on interest rates have made mortgages more expensive and payment assessments harder to pass.

New borrower rules from the Central Bank have also narrowed the options for buyers. At the same time, various support measures and market interventions may have affected the prices of the smaller homes first-time buyers are most likely to consider.

So I understand why young people feel pessimistic and wonder whether this will ever improve.

I don’t want to dismiss that feeling. Buying a first home is a serious challenge.

But is there any reason for optimism?

What happens next?

Recent economic forecasts from several Icelandic institutions suggest that house prices may rise more slowly over the next few years than they have in the recent past.

That would be very good news for first-time buyers.

The reason is simple. When you’re saving for a down payment, you need to feel that each month is bringing you closer to your goal. If house prices rise too quickly, the goal keeps moving away from you.

The Icelandic economy has cooled quite quickly, and unemployment has risen. That is obviously bad news, but it may also encourage the Central Bank to lower interest rates further. We recently saw some mortgage rates dip below 8% for the first time in a long while, and although the outlook is uncertain, it’s possible that rates may fall further.

Is it really possible?

At the beginning, I said you could buy a home.

But how?

The most important thing, and I really mean this, is your mindset.

You need to build a wall around yourself to protect your ambition from all the negative noise around you. I meet far too many people who have heard almost nothing from parents, social media, politicians and the media except that they’ll never be able to buy a home because it’s impossible.

That isn’t true.

And worse, that kind of talk can make people give up before they’ve even started.

It is possible. Here are a few things that may help you prepare well and eventually enter the housing market with confidence.

Sign up for supplementary pension savings

Since you’re not yet 18, your parents will need to help you sign up for supplementary pension savings.

This can give you what is, in effect, a 2% pay increase from your employer. The money you build up may then be used to help you buy your first home.

And even better, under current rules, it can be used tax-free.

Work hard

Don’t be afraid to apply for jobs and work alongside school.

When I was your age, I worked in a grocery store and at a video rental. It taught me responsibility and the value of working properly. The money also made a real difference.

Looking back, I think it may have been the best school I ever went through.

Take good care of your money

I know it’s fun to spend money.

But try, as much as you possibly can, to keep your expenses low and plan them carefully. The young people I meet who are doing especially well in preparing to buy a home almost all have one thing in common: they have very good control over their spending.

Don’t gamble.

Don’t waste money on things you don’t need.

Don’t play the lottery.

Don’t take unnecessary risks.

Don’t look for magic solutions.

Eat at home with your parents and bring lunch to school.

It may not sound glamorous, but it works.

Run the numbers

The plan is simple: spend only a small part of what you earn.

The rest, along with your supplementary pension savings, can go towards your down payment.

But you need to use calculators and look at the numbers properly.

Let’s take an example.

Say you manage, on average, to earn ISK 100,000 more per month than you spend. I’m assuming here that you work hard during holidays and weekends.

If your goal is to save a 15% down payment for a home costing ISK 70 million, you could reach that target in roughly six years.

If you start earning more as you get older, it could happen faster.

You are allowed to buy with a 10% down payment, but it’s wiser to aim for 15% if you can.

If you work hard and avoid unnecessary spending, I’m not worried about you.

I’m not worried because I regularly meet teenagers and young adults who are doing this extremely well. They don’t let gloomy voices on television or at family gatherings tell them what they can’t do.

But what if life gets in the way?

This may all sound very simple.

Spend less than you earn, save the difference, then walk into the bank in your early twenties with a smile and buy a cosy apartment.

Of course, life can be more complicated than that.

You may have limited opportunities to earn money. You may need to spend quite a lot on necessities. You may have to spend some time renting before you can buy. Unexpected difficulties may appear.

But planning and simple financial principles will still help you through those periods.

If you promise yourself never to borrow money for anything before the time comes to buy a home, and if you consistently spend less than you earn, you’ll move closer to buying your first home.

Whether that takes four or five years, or even ten or twelve, you’ll still be moving in the right direction.

You can’t control the wider environment, interest rates or house prices.

But you can control your own personal finances.

Good luck.