Norway’s Property Price Rebound Triggers Warning From Regulator

The head of Norway’s financial regulator said a rebound in property prices is unwelcome as Scandinavia’s richest nation struggles to contain its record household debt burden.

“The recent development in house prices might give some reason for renewed concern as there are some signs that house prices might be picking up again,” Morten Baltzersen, director general of the Financial Supervisory Authority, said in an interview yesterday after a presentation in Oslo.

Pressure is building in Norway’s housing market as banks fight to attract customers. DNB ASA, Norway’s biggest lender, and Nordea Bank AB cut mortgage rates last week, following moves by Skandiabanken, Storebrand ASA and SpareBank 1 SMN.

House prices have almost reversed a 6 percent drop seen in the last seven months of 2013 as unemployment below 4 percent and low interest rates support the real estate market. The central bank last month kept its benchmark rate unchanged at 1.5 percent and stuck to plan to start tightening in the summer of next year.

Baltzersen signaled in February the regulator might be ready to tighten its recommended 85 percent loan limit on mortgages. He said yesterday that it’s “far too early to tell whether this should give reason to reconsider our guidelines.”

The government in February rejected the FSA’s advice on loan standards, arguing banks need more flexibility after the housing market showed signs of deflating. Banks should be freed to assess individual mortgages of up to 90 percent of a property’s value, Finance Minister Siv Jensen said at the time.

Borrowing Spree

Norway’s housing market, which Nobel laureate Robert Shiller as far back as 2012 said was in a bubble, has been inflated by a period of record-low interest rates that fueled a borrowing spree. Norwegian households owe their creditors about twice their disposable incomes, a level the central bank and the regulator have warned is unsustainable.

The FSA head flagged earlier this year that the regulator was reviewing individual banks and looking into stricter capital standards and risk weights on mortgage loans. The work is “now in process so we assume we will conclude this work in the first half,” he said.

The regulator in 2011 capped mortgages at 85 percent of a home’s value, and the government will require banks to hold as much as 10 percent capital relative to their risk-weighted assets by July. For eight systemically important banks, including DNB, the target will rise to 11 percent in 2015 and 12 percent a year later. There will also be a 1 percent counter-cyclical buffer. At the start of the year the FSA raised the loss-given-default floor to 20 percent on home loans from 10 percent.

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