Debt worries spur new guidelines
March 8, 2010
Financial regulators in Norway, worried about rising debt levels, are urging banks to tighten lending procedures. They’ve sent out new guidelines that will make it harder for borrowers to qualify for mortgages.
“I never would have been able to get a loan under these new rules,” first-time homebuyer Jannicke Sæbø told newspaper Dagens Næringsliv (DN). She just recently got a loan that fully finances her new 42-square-meter condominium at Veitvet in Oslo, and wouldn’t have met new equity requirements.
State regulatory agency Finanstilsynet (formerly Kredittilsynet) recently sent out what the media is calling “The 10 Commandments” for lending in Norway. Among them: No loan should amount to more than 90 percent of the home’s market value.
That means minimum 10 percent down payments. The regulators also want banks to, among other things, have a full overview over borrowers’ total debt situation, and make sure borrowers would be able to handle interest rate increases.
Bjørn Skogstad Aamo, director of Finantilsynet, said the new guidelines were sent out because household debt in Norway is growing twice as fast as household income. “The interest rate burden on households is increasing month by month,” he told DN. “Debt has never been so high in relation to income.”
Commercial banks in Norway, however, have continued to lend money at a brisk pace. They claim the new rules will especially hurt first-time buyers. Skogstad Aamo doesn’t agree that they have a right to buy a home, and maintains that they should save up some money first, before taking on a loan.