Mortgages, Loans | Borrowing opportunities are tightened

On Monday morning, Finanstilsynet presented a proposal to tighten the mortgage regulations. The Authority wishes to reduce the maximum limit for the borrower’s total debt from 5 to 4.5 times gross annual income.

In addition, the Authority proposes to reduce the flexibility quota for mortgages from ten per cent (eight in Oslo) to five per cent. The flexibility quota means that banks can use discretion and make exceptions to the rules in certain cases – when assessing new borrowers.

The purpose of the proposal is to reduce the temperature and the risk of overheating in the housing market.

But the proposal faces strong criticism from both the brokerage industry and the major banks DNB and Nordea. The tightening will lead to a very large number of young people not entering the housing market – this is the opinion of both the banks and the brokerage organization Eiendom Norge, which also estimates that housing prices will rise, because there will be fewer new homes on the market.

– Even more difficult to establish

– In the short term, there will be many more who will not be able to establish themselves, especially in press area areas. There will be fewer available homes, says Henning Lauridsen, CEO of Eiendom Norge, an umbrella organization for real estate agents.

According to Lauridsen, a nurse with 575,000 in annual salary has access to approximately three percent of the homes in a press area with the current scheme. This share will be even lower, when the maximum limit for loans is reduced from five to four and a half annual salaries, he claims.

But also another effect, which is unintentional, will occur, says Lauridsen, who refers to research from Oslo Met:

– With lower demand, the production of new homes also falls. And then there will be even fewer homes available. This contributes to prices being maintained or rising even more.

Also read: Will make it harder to get a mortgage

– Must have its own schemes

– But the purpose here is precisely to lower the temperature in the housing market – you need to do something about this?

– We fully support preventing unhealthy credit build-up. But we have strong effects on access to the housing market.

Lauridsen believes that space should instead be given to establish special schemes for first-time buyers, he believes:

– You can give an exception for x times income if you tie the interest rate. It is not expensive to own compared to renting, and in this way you can secure a ceiling on expenses.

– Will cool down the market

Nordea’s Norwegian head and director of the retail market, Randi Marjamaa, points out that the market is still uncertain.

– We want a balanced housing market and that prices do not go away, and a regulation can contribute to that balance. A tightening now will hit very differently, but limits the banks’ ability to help customers – knowing what the right balance is is difficult, and much depends on what it looks like in the first quarter of 2021.

Also read: Norges Bank predicts huge jumps in house prices

The situation is still uncertain, Marjamaa believes. She points out that the proportion who want a grace period is still far higher than in a normal year. There is little doubt as to who is hardest hit by the tightening:

– There will be young people in the establishment phase, but also people who are in the middle of a divorce or other life crises. The reduction in flexibility will be noticeable. A tightening from January will have a significant dampening effect on house prices.

According to Marjamaa, it was very noticeable when the Oslo region in 2018 had a tightening of the flexibility quota from 10 to 8 percent.

– So when we now go from 10 to 5 percent in the whole country, and from five to four and a half times the income in maximum loans, it will be felt well.

Also read: This factor determines whether you get a super interest rate on the loan

Wrong medicine, according to DNB

DNB supports Finanstilsynet’s description of lending regulation as intrusive, and believes in principle that lending practices should be the banks’ own responsibility.

– At the same time, we have an understanding of the authority’s assessments and the need for regulation, given continued strong growth in household debt burden. We believe the requirement for a maximum debt ratio should be continued at 5 times income, says head of retail for DNB, Ingjerd Blekeli Spiten.

Finanstilsynet writes this in its notification of the regulatory change:

– In Finanstilsynet’s assessment, the proposed requirements in the regulations will entail a moderate tightening of the banks’ lending practices, which is well adapted to considerations of financial stability under the prevailing economic conditions.

Both DNB and Nordea perceive the proposed requirements as comprehensive, and not so moderate. Like Marjamaa, Spiten in DNB believes that a tightening will now particularly affect young people’s opportunities to establish themselves in the housing market.

– This will also have an impact on the sale of new homes and thus also the assessment of the start-up of new housing projects.

DNB also believes that the flexibility quota should be maintained at 10 per cent.

– A reduction in the current flexibility quota to five per cent will mean a significant tightening of the banks’ ability to exercise discretion. This will affect young first-time buyers and customers who experience temporary vulnerable life situations, such as divorce. These are customer groups that we are concerned with finding good solutions for today, says Spiten.

The equity requirement associated with secondary housing in Oslo, on the other hand, can be continued, DNB believes.

– We also support Finanstilsynet’s assessment that the flexibility quota should not be differentiated according to the home’s geographical location, so that Oslo is coordinated with the rest of the country to 10%.

Finanstilsynet also proposes to abolish the rules that BSU funds can be deducted from the loan amount when calculating the customer’s debt ratio and loan-to-value ratio.

– We do not support this proposal. The regulations should not prevent young people from continuing to benefit from BSU savings after they have bought their first home, says Spiten.

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