Finanstilsynet’s recommendation for lending regulations entails a tightening of the current rules.
The Authority’s recommendations were announced on Monday morning, and are an important part of the Ministry of Finance’s decision basis when assessing whether the regulations will be continued when they expire at the turn of the year, and in what form.
Mortgages in particular will be tightened if Finanstilsynet gets what it wants. It recommends that the maximum limit for the borrower’s total debt be reduced by ten per cent, from five to 4.5 times gross annual income, and that the banks’ flexibility quota be halved.
Today, banks can deviate from the requirements for the customer’s serviceability and loan-to-value ratio in ten per cent of the population (with the exception of Oslo where the quota is eight per cent), but this is proposed to be reduced to five per cent.
The reason for wanting to tighten is the historically high level of debt in the population:
“A high debt ratio in households poses a significant risk of financial instability,” the Authority writes in a press release.
Will include car and boat loans in the calculation
“There is a danger that the debt ratio will increase in the years ahead and that many households will take out large loans, partly because interest rates are very low and high house prices give many households the opportunity to take out additional mortgaged loans.” writes the supervision further.
In addition to tightening mortgages, it is recommended that the regulations be extended to borrowers with collateral in other than housing, such as cars, boats and so on. This constitutes a small part of the total debt, but:
“Such loans, which the borrower often has together with other debt, can nevertheless contribute to a significant risk for vulnerable households and thus also have an impact on financial stability,” writes Finanstilsynet.
In addition, it is recommended that no flexibility quota be granted for other types of loans than for housing.
The banks’ flexibility has been even higher during the corona crisis, as a temporary measure to counteract the economic downturn. Until recently, banks were able to deviate from the requirement in 20 per cent of cases.
The measure was to counteract the negative effects of the crisis, and in the period of increased flexibility, house prices increased by 3.3 per cent. If the temporary measures were continued, it could push up prices further, according to Finanstilsynet. The Ministry of Finance based its recommendation and tightened it earlier in September.
Then it also became clear Statistics Norway expects interest rates to rise from the middle of 2021. At the same time, they predict house price growth in the coming years and sharply raises the forecasts. (Terms)Copyright Dagens Næringsliv AS and / or our suppliers. We would like you to share our cases using a link, which leads directly to our pages. Copying or other form of use of all or part of the content, can only take place with written permission or as permitted by law. For further terms see here.