Norway Regulator Rejects Government Pleas to Ease Loan Standards

Norway’s financial regulator rejected the Conservative-led government’s pleas for looser mortgage standards and signaled new measures may be needed to cool household debt growth.

“Unless household debt growth starts slowing ahead, it may become necessary to evaluate new measures that could contribute to restricting credit growth,” the Oslo-based Financial Supervisory Authority said today in a letter to the Finance Ministry. The regulator said it can’t now recommend changes to loan guidelines and that it will place “great emphasis” on banks sticking to the current rules.

The government in October asked that the regulator evaluate the effects on banks and homeowners of guidelines in place since 2011 that limit lending to 85 percent of a home’s value. The request came amid signs Norway’s housing market was deflating, after home prices doubled over the past decade.

The Conservative-led government, which won power in September, promised before elections to look into raising the amount banks can lend to borrowers to 90 percent of a property’s value, in part to ease access for first-time buyers.

The regulator said today that the banks are already flexible in their compliance with the mortgage guidelines as a survey last year showed that 15 percent of all mortgage loans had a loan-to-value ratio of more than 85 percent. That’s down from 17 percent in 2012.

Finance Minister Siv Jensen said the government will next week publish its conclusions based on the FSA’s report.

“A preliminary reading indicates that the rules are practiced with considerable flexibility,” she said in a statement. “I’m committed to having guidelines for the banks mortgage lending practice that in the best possible way contributes to a good and stable development in the Norwegian economy and that safe borrowers can expect to get a loan.”

Norway’s housing market, which Nobel laureate Robert Shiller already in 2012 said was in a bubble, has been inflated by a period of record-low interest rates that fueled a borrowing spree in Scandinavia’s richest nation and left Norwegians more indebted than ever before. Households now owe about twice their disposable incomes to their creditors, a level the central bank and the financial regulator have warned is unsustainable.

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