Norway Government Rejects Regulator’s Advice on Mortgage Cap

Norway’s government rejected advice from the financial regulator for tighter loan standards, arguing banks need more flexibility as the country’s housing market shows signs of deflating.

Banks need flexibility to assess individual loans and mortgages of up to 90 percent of a property’s value can be safe, Finance Minister Siv Jensen said today in Oslo. The Financial Supervisory Authority recommended in 2011 to cap loans at 85 percent to cool lending growth.

The regulator needs “to have a focus on the developments of the Norwegian economy, especially the housing market,” she said in an interview. “The regulations are working quite well, what I have done today is made some provisions in how to interpret” their regulations “and facilitate access to the housing market for young people.”

The FSA last week criticized a plan from the Conservative-led government to loosen mortgage guidelines and signaled new measures may be needed to cool debt growth. After taking power in October, the government asked that the regulator evaluate the effects on banks and homeowners of the tighter guidelines in place since 2011. The request came amid signs Norway’s housing market was deflating, after prices doubled over the past decade.

In January, home prices declined an annual 1 percent, according to a monthly report by the Norwegian Real Estate Brokers Association. Credit growth was 6 percent in December, down from more than 7.3 percent in 2012.

Reviewing Banks

Jensen also said that it was important for the Norwegian economy that debt growth slows.

The minority government 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 FSA is now reviewing individual banks, which could lead to increases in the loss-given-default floor and “to higher capital standards than the minimum standards laid down in legislation,” Morten Baltzersen, director general of the FSA, said in a Feb. 3 interview.

At the start of the year the regulator raised the loss-given-default floor on mortgages to 20 percent on home loans from 10 percent.

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