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How Norway's weak krone affects the property market 

Frazer Norwell
Frazer Norwell - [email protected]
How Norway's weak krone affects the property market 
A weak krone has had a marked effect on the Norwegian property market. Pictured is a backstreet in Oslo. Photo by Rocio Abrego on Unsplash

Norway's krone is down considerably to the dollar, euro and pound, with the effects of the struggling currency being felt in the country's property market. 

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The Norwegian krone is currently at its weakest against the euro for three years, with a euro costing as much as 11.90 kroner recently. 

It's similar news when comparing it to the dollar or pound. In recent weeks a dollar has been as expensive as 11.81 kroner, while a pound has traded for 13.53 kroner at its recent peak. 

Norway's struggling krone means less value for money when travelling abroad or using the currency in other countries. It can also drive up inflation by making the cost of importing more expensive. 

READ ALSO: How long will the Norwegian krone remain weak?

A struggling krone can also impact Norway's property market in a number of ways. For starters, one of the contributing factors to a weak krone is lower interest rates in Norway than elsewhere. 

Therefore, to boost the ailing krone, the central bank, Norges Bank, may raise the key policy rate further. 

When raising the key policy rate at the beginning of May, Norges Bank said that a struggling krone might mean that interest rates are hiked beyond the target of 3.5 percent. 

"If the krone remains weaker than assumed or the pressure in the economy persists, a higher interest rate than we have previously envisaged may become necessary," Ida Wolden Bank, Governor of Norges Bank, said. 

A higher interest rate means higher loan and mortgage repayments. Higher loan and remortgage payments typically mean less disposable income for households. 

Furthermore, higher rates can also make it harder to get on the property ladder in the first place. This is because lenders in Norway are required to stress test mortgage applicants' finances and whether they can afford rate hikes. 

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Banks in Norway are required to stress test the finances of applicants finances against raises of three per cent. This means that if interest rates approach some analysts' predictions of four per cent, then those looking for a mortgage will be required to weather rates of more than seven percent to be granted a mortgage, as lenders' rates are higher than the key policy rate. 

One piece of relief to homeowners is that the government introduced new rules at the beginning of the year. If they didn't tweak the rules, prospective homeowners would've needed the financial wiggle room to tolerate increases of up to five percent rather than three. 

 Interest rates aren't the only way the property market can be affected, but the krone could also directly impact property prices in Norway. 

The latest housing figures released from Real Estate Norway show that the average cost of buying a house is around 4,595,966 kroner. House prices have risen 6.8 percent this year already. Many experts expected a downturn in the Norwegian market in 2023. 

A strong economy has been pointed to as one of the factors behind the unexpected growth. Moving forward, a weak krone is likely to directly impact house prices. According to Henning Lauridsen, CEO of Real Estate Norway, it could lead to properties becoming more expensive. 

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"In recent months, the weak krone has dominated the news. For travel-loving Norwegians and imported consumer goods, this is negative. But for the export and tourism industries, this is positive and something that will strengthen the Norwegian economy and, secondarily, the housing market," he said in a report on the latest housing figures

Rising house prices can make it harder for first-time buyers and those looking to step up another rung on the property ladder. 

Higher interest rates and higher house prices affect young buyers the most, according to Randi Marjamaa, head of the personal market at Nordea. 

"The many interest rate increases and still high house prices seem to have the worst effect on the opportunities for young people to get into the housing market," she said in a report.

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