Norway’s government will tighten mortgage lending regulations to curb household debt and house price growth, as the central bank tries to thwart risks from a borrowing binge spurred by low rates.
The loan-to-value ratio on residential mortgages will be capped at 85 percent while repayments will be required on loans above 70 percent, Norway’s Finance Ministry said in a statement on its website.
“It is important that we have a framework for banks’ residential mortgage lending practices, which contributes to a sound and stable development in the Norwegian economy,” Finance Minister Siv Jensen said in a statement on Monday. “Strong growth in lending and household indebtedness can be a risk factor for the Norwegian economy.”
The central bank in March unexpectedly delayed cutting interest rates, citing financial stability concerns as surging house prices and rising private debt prompted warnings from the nation’s watchdog. Norway’s Financial Supervisory Authority and the central bank recommend tighter lending rules, such as testing borrowers’ debt-servicing capacity against rate increases.
The regulations will enter into force July 1 and cease to have effect Dec. 31, 2016 unless an assessment shows the need for them to be extended, the Finance Ministry said.
Norwegians owe their creditors about twice as much as they make in disposable incomes, more than at any time in the country’s history. House prices jumped about 7.5 percent in May from a year earlier.