Norway FSA Proposes Tighter Mortgage Rules to Stem Debt Growth

Norway’s Financial Supervisory Authority proposed banks have their discretion curtailed and stricter repayment standards implemented to limit the risk of a house price bubble.

While bank lending practices have tightened somewhat after the new regulations were introduced, there is a risk that fast growth in debt and house prices may persist for some time, the financial regulator said in a statement on its website.

“After the Ministry of Finance last summer issued regulations setting requirements on new loans secured on residential property, household debt and house prices continued to rise faster than household incomes,” the FSA said in the statement. “There is now cause to tighten the regulatory provisions.”

Norway’s real estate market has boomed as the central bank cut interest rates to a record to counter a slump in oil industry activity and weak demand abroad. Housing starts have risen 20 percent over the past year and home prices are rallying at an annual pace of almost 10 percent nationwide.

Bank discretion on waiving requirements on debt servicing ability, loan-to-value ratio and amortization should be curbed and a borrower’s overall loan should be limited to five times gross annual income when considering their ability to service debt, according to the proposal.

The maximum loan-to-value ratio for home equity credit lines should also be lowered to 60 percent from 70 percent and amortization payments required for a loan-to-value ratio above the new limit, the FSA said.

“The FSA’s proposal to use the same medicine in widely different markets, will hit weak housing markets hard,” Carl Geving, the head of the Norwegian Association of Real Estate Agents said in an e-mailed statement. “We are surprised that the FSA proposes repealing the flexibility in the current lending rules.”

The government will examine the proposal and send it for hearing in the course of the week, Finance Minister Siv Jensen said in a statement.

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