Norway considers stricter rule on debt limit for mortgages

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Norway considers stricter rule on debt limit for mortgages
Mortgage lenders could apply stricter rules under a tighter regulation proposed by Norway's Financial Supervisory Authority. Photo by Tierra Mallorca on Unsplash

The Financial Supervisory Authority of Norway (Finanstilsynet) wants to reduce the total amount of debt permitted for mortgages to be 4.5 times the income of the borrower. Critics say the change could make it too difficult to be approved for a mortgage.


The finance authority, a government agency that has the remit of promoting financial stability, has recommended new borrowing regulations to Finance Minister Trygve Magnus Slagsvold Vedum. The regulations could come into effect on January 1st next year.

The headline change among the recommendations tabled by the Financial Supervisory Authority is a reduction from the total debt permitted for mortgages, from the current 5 percent of income to 4.5 percent.

The recommendations were reported on Monday by Norwegian media including NRK and E24.


Government regulations on lending determine who banks can approve for mortgages and how much lenders can borrow.

Specifically, the regulation change would reduce the total debt incurred by the lender on drawing the mortgage from 5 percent of gross annual income to 4.5 percent.

In addition, existing loans such as on cars or second homes would count towards the total debt of the lender.

The finance authority based its decision on what it sees as increased risk of financial instability compared to the situation when the existing regulations were set, E24 writes.

Criteria in the current regulations should be “tightened somewhat to prevent accumulation of debt in vulnerable households,” the authority wrote in its reasoning for the recommendations.

Norges Bank, the Norwegian central bank, has previously stated that current regulations can be continued, while the interest organisation for real estate businesses, Eiendom Norge, called the recommendation “odd”.

“It’s extremely odd that they are coming out with this now. It involves a very severe restriction of the opportunity to loan,” Eiendom Norge CEO Henning Lauridsen told E24.

“We think the entire regulation should be set aside,” he added.

The restriction on total debt as a proportion of income was first introduced by Norwegian regulators in 2015 as a measure to keep rising house price in check. It has since been extended and the original rules were tightened in 2017.

Norway’s central bank raised interest rates to 2.25 percent in September. The interest rate was 0.5 percent when the current regulations took effect in 2017.

“There is, in practice, no need for loan regulation with interest at the level we have now. The interest rate increase will put loan interest rates somewhere between 4 and 5 percent, which in itself will further decrease debt growth,” Lauridsen told E24.

The authority said that regulation of borrowing should not be based on expectations of market behaviour alone.

READ ALSO: How much poverty is there in Norway?


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