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What rising interest rates mean for Norway's property market

Robin-Ivan Capar
Robin-Ivan Capar - [email protected] • 7 Nov, 2022 Updated Mon 7 Nov 2022 13:01 CEST
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As real estate experts expected, the interest rate increases have affected housing prices in Norway. Photo by Eirik Skarstein / Unsplash

Norway's central bank (Norges Bank) has been aggressively increasing the key interest rate in an effort to cool down economic activity in the country. The policy has started to affect housing prices.

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The interest rate on new mortgages for consumers increased to 3.29 percent from August to September. The interest rate on outstanding mortgages also rose in the same period to a total of 2.91 percent.

Furthermore, the monthly statistics for September from Statistics Norway (SSB) show that both the floating interest rate and the fixed interest rate on new mortgages increased.

READ MORE: Rising rents and a shortage of homes: Why now is a hard time to rent in Norway

The floating interest rate is now higher than when pandemic measures were introduced in March 2020, and the key interest rate was slashed from 1.5 to 0.25 per cent. 

Last week, Norway's central bank, Norges Bank, raised the key interest rate 0.25 percentage points to 

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Strong decrease in house prices

As real estate experts expected, the interest rate increases have affected housing prices in Norway.

Housing prices fell by 1.9 percent from September to October, according to the most recent figures from Real Estate Norway (Eiendom Norge). Adjusted for seasonal variations, the decline in prices amounted to 0.8 percent nationally.

"At the moment, it (note: the situation) is not dramatic," the managing director of Eiendom Norge, Henning Lauridsen, told the Norwegian news bureau NTB.

Eiendom Norge believes that the interest rate has been raised too much and states that this is the main reason for the fall in housing prices.

"If Norges Bank follows its (current) interest rate path, households' interest expenses will roughly double through 2022.

"The developments in September and October illustrate how interest-sensitive the Norwegian housing market is, and we will ask Norges Bank to proceed more cautiously from now on, Lauridsen said.

Biggest price decrease in Oslo

Oslo and Hamar registered a seasonally adjusted decrease in housing prices of 1.9 percent. Without seasonal adjustment, prices in Oslo fell by 3.2 percent.

"It's fierce. We have not seen a stronger decline in Oslo since 2008. People in Oslo have large loans, so we often see that the impact of interest rate changes is greater there," Lauridsen says.

On the other hand, Kristiansand has seen the strongest price developments so far this year, with an increase of 9.1 percent, followed by Stavanger and its surroundings at 7.8 percent, and Drammen and its surroundings, where prices rose by 7.3 percent.

"Things are much better in places where the labour market is closely linked to the oil and gas sector… There, there is great optimism. We see that especially in Stavanger, but also in Kristiansand," Lauridsen added.

Oslo had the weakest development so far in 2022, with an overall price increase of 2.9 per cent.

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Several important factors will affect the real estate market in the coming months.

The Norwegian Ministry of Finance plans to assess the lending regulations in the country before the New Year, and the central bank will have its last interest rate meeting of the year in mid-December. Furthermore, a new Financial Contracts Act will come into force on January 1st.

READ MORE: Norway considers stricter rule on debt limit for mortgages

Eiendom Norge criticizes the lending regulation update proposed by the Financial Supervisory Authority of Norway (Finanstilsynet), which, among other things, stipulates that banks should not grant loans if the customer's total debt exceeds five times their annual income.

"Maintaining strict lending regulations on top of such high interest rates is something that has never been tried before. It would be an experiment with the housing market and financial stability," Lauridsen told NTB.

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Eiendom Norge expects the decline in housing prices to continue throughout the year. So far this year, overall, house prices have risen by 4.7 per cent.

"It is not unlikely that housing price developments in Norway in 2022 will end at around 0 per cent," Lauridsen noted.

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Robin-Ivan Capar 2022/11/07 13:01

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