The private broker believes that the lending regulations must be changed if the interest rate is raised by 0.5 percentage points in August. Unwise, says the Norwegian Estate Agents’ Association, which believes it will exacerbate the problem of Norwegians taking on too much debt.
So far this year, house prices have risen by 6.4 per cent nationally, according to Eiendom Norge. Photo: Håkon Mosvold Larsen / NTB scanpix Published: Published:
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Housing prices in Norway fell by 1.2 per cent in June, figures from Eiendom Norge show. The last time prices fell was in December.
So far this year, house prices have risen by 6.4 per cent nationally.
Eiendom Norge now expects prices to fall further.
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– Unless something happens that is beyond our expectations, we will see interest rate increases now that will have a direct effect on house prices every time we get an interest rate increase in the future. We probably don’t imagine that we will have a very sharp fall in house prices, but we also believe that there will be several percent, says Henning Lauridsen, managing director of Eiendom Norge, to E24.
Price growth in Norway came in at 6.4 per cent in June, compared to the same month last year, which was higher than expected.
Sara Midtgaard at Handelsbanken therefore believes that we can get a double interest rate hike from Norges Bank as early as August.
An interest rate increase of 0.5 percentage points next month will create a need to do something about the lending regulations, believes CEO Grethe Meier at Privatmegleren.
– Otherwise, the housing market will stop completely, says Meier to E24.
Will put the regulation in the drawer
The lending regulations set requirements for, among other things, the customer’s ability to pay, level of debt and level of payment.
Meier points out that the banks are required by law to stress test loan customers, and check whether they can withstand an interest rate increase of three percentage points. If the mortgage you want to take out has an interest rate of six percent, you must therefore tolerate an increase of up to nine percent.
– Few people will manage it, and the probability of an interest rate of nine per cent is low, says Meier.
Grethe Meier, managing director of Privatmegleren. Photo: Skjalg Böhmer Vold
Boligtoppen believes that the interest rate in itself will stop both the eagerness and the will to get financing, and that an additional instrument is therefore not needed to curb debt growth.
– What would you do?
– I would put the entire regulation in the drawer, then we will leave it there until we possibly need it the next time we get a low interest rate regime again, says Meier.
– You are not afraid that people will get too high a debt then?
– I think the banks can handle this themselves. They don’t want to lose money, so they add a safety margin regardless of the lending regulations. That’s what banks can do.
The lending regulations
Regulations introduced in 2015 that set a framework for banks’ lending practices. The mortgage regulations have subsequently been continued and amended three times. The regulations were introduced as a result of strong growth in housing prices and household debt. Among other things, the banks are required to “stress test” loan customers, and assume that the customer can withstand an interest rate increase of three percentage points. The current lending regulations entered into force on 1 January 2023 and apply until 31 December 2024.
Source: Reggeringen.no
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– Very unwise
Carl O. Geving, managing director of the Norwegian Estate Agents Association, says it is obvious that the housing market will have an effect, both on how much loan people can carry and psychologically, if the interest rate is raised by 0.5 percentage points in August.
– The question is how much. The market will probably not stop, but it will lead to weaker price growth.
Gevig, on the other hand, believes that it would be a bad idea to remove the lending regulations.
– It would have been very unwise to remove the lending regulations. Those who are very motivated to get a mortgage, but can’t really afford it, will then be able to borrow much more, he says.
Carl O. Geving, managing director of the Norwegian Association of Estate Agents. Photo: Adrian Nielsen
Geving highlights Iceland as an example, where the market is now almost at a standstill. The country has hardly had credit requirements at the same time that interest rates have been low, which has led to a house price increase of over 40 per cent since the pandemic.
– Last year they tightened the requirements to stop the explosive price and debt growth. Since then, lending rates have risen towards 10 per cent and now there is a crisis in the market, he says.
I think it will exacerbate the problem
Removing the lending regulations will only exacerbate the problem of Norwegians taking on too much debt, believes Geving.
– Interest rates have already risen much more than expected. Over 90 percent have floating interest rates, which means that Norwegians’ economy changes much more dramatically than in countries where most have fixed interest rates.
Carl O. Geving believes that the lending regulations help limit the problem of Norwegians taking on too much debt. Photo from Bjørvika in Oslo. Photo: Cornelius Poppe / NTB
Geving adds that the banks are also uncertain about where the interest rate should be. Although they profit from higher interest rates, at the same time they do not want their customers to have problems with excessively high loans.
– In the competition for loan customers, the banks still stretch as far as they can, and this contributes to increased debt burden and greater vulnerability in households, he says.
Could have caused an artificial price rise
Meglertoppen points out that history, both nationally and internationally, has shown that banks that are poorly regulated, with too weak requirements for capital, liquidity and lending practices, fall into the trap time after time.
He believes this is one of the most important arguments for the lending regulations to be passed.
– People are allowed to borrow too much money, and that helps to build up a mountain of debt. That is why we have sound policies in this field, which should both limit the vulnerability of households and ensure solid banks that can withstand economic crises, says Geving.
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From 1 January this year, the regulations were changed so that loan customers must withstand an interest rate increase of three percentage points, down from the previous requirement of five percentage points.
Geving says that the change has already helped ease the market. Although the number of first-time buyers has fallen, it has helped to moderate the fall, he believes.
– If we removed the regulation now, we would probably get an artificial rise in the housing market, at a time when most factors point in the opposite direction. That would not be sustainable.
– As the situation is now, we have to accept that interest rate developments limit purchasing power and dampen price developments. That is the intention of monetary policy. But we consider the second-hand housing market to be relatively robust, and are not worried about a deep fall in house prices even if the interest rate path is higher than previous forecasts suggested, he adds.
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