“It is important to proceed cautiously,” Siv Jensen, Norway's Minister of Finance, said at a press conference after new mortgage requirements were announced.
“There is a risk that the authorities can overregulate this and make matters worse. We must take small steps and test the instruments we are using.”
Norway’s Financial Supervisory Authority (FSA) in March recommended removing the loopholes which allow Norway’s banks to issue mortgages where homebuyers have stumped up less than 15 percent of the price with their own money.
It also recommended that banks analyze borrowers’ financial situations to ensure that they can handle a six percent jump in interest rates, and that they ban interest only payment periods on all mortgages with a loan-to-value ratio above 65 percent.
Norway’s Finance Ministry stopped short of implementing almost all of these measures, instead choosing to limit the share of mortgages banks can issue where the borrower contributes less than 15 percent of the value of the acquisition in equity to ten percent.
“This is an extension of current practices and won’t lead to any great changes in current practice,” Jan Erik Fåne, communications director for bank trade body Finance Norway told E24.
Kari Due-Andresen, chief Norway economist with Sweden’s Handelsbanken, said that the package was too light touch to open the way for a looser interest rate policy from Norway’s central bank.
“Norges Bank probably would have preferred to have had measures which were more in line with what the FSA suggested,” she told E24. “The measures are a step on the road but relatively moderate. Therefore, Norges Bank will continue to emphasize financial stability going forward. If credit growth rises more than expected, it will mean that interest rates start to rise.”
In the press conference, Jensen defended her decision to leave considerable discretion with the banks.
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“I have great confidence that the Norwegian banks make good credit ratings in individual loan cases, but we have a strong growth in lending which may contribute to increased risk in the Norwegian economy,” she said.
The central bank delayed cutting interest rates in March, despite rapid slowing of Norwegian economic growth as a result of the year’s dramatic decline in the oil price.
House prices rose 7.5 percent in May, compared to the same month last year, and Norwegians owe on average twice as much as their disposable incomes, the highest level in the country’s recent history.