Worried about both rising debt levels and sky-high housing prices, Finance Minister Siv Jensen has rolled out a package of measures to make it harder to qualify for mortgages, especially in the Oslo area. She’s especially cracking down on investors and speculators in the housing market who are accused of driving up prices.
“High debt makes households much more vulnerable to a decline in housing prices or increases in interest rates, and it increases the risk that they later will have to cut back on consumption,” Jensen said. “The rise in housing prices and household debt levels poses risks for the Norwegian economy, so there’s a need for some new measures.”
Norway’s central bank predicted on Thursday that interest rates would remain low, a factor that’s also been blamed for rising debt levels and fueling demand in the already overheated housing market. Jensen is first and foremost keen on making it less attractive for real estate speculators to buy secondary housing units that would not be owner-occupied, and her proposals seemed generally well-received: “This is good for dampening the price pressure on first-time buyers,” real estate broker Joachim Norum Larsen at DNB Eiendomsmegling told newspaper Aftenposten.
40 percent equity demand
Jensen’s measures will impose a requirement that buyers of so-called “secondary homes” in Oslo, purchased for investment purposes, must provide a down-payment of at least 40 percent of the purchase price, and thus borrow no more than 60 percent. The rule will not apply outside of Oslo and is aimed primarily at pushing speculators out of the Oslo market, where it’s not unusual for apartments to now be priced at as much as NOK 100,000 per square meter.
“Buyers of secondary homes can drive up prices for other buyers,” Jensen said. “Stricter demands for capital in Oslo can therefore limit speculaton and relieve pressure during bidding rounds for young buyers and families establishing themselves in their first homes.”
Also included among the measures is a requirement to be imposed nationwide that banks can’t lend money to customers if their total debt would amount to five times their total income. Banks will continue to be unable to lend more than 85 percent of a housing unit’s purchase price.
Some of the tax advantages of owning real estate in Norway will also be curbed. Borrowers will no longer be able to write off debt that surpasses 60 percent of the value of a home, for example. Norwegian tax laws have long encouraged home ownership by allowing borrowers to deduct debt from their taxable net worth and interest payments from their taxable income. The government wants to maintain home ownership incentives, but limit how it also can encourage Norwegians to take on more debt.
Jensen’s measures, due to take effect from January 1, were already having an effect. Newspaper Dagens Næringsliv (DN) reported on Thursday how one Oslo couple who have been active “hobby investors” in the real estate market immediately decided to drop plans to buy another Oslo apartment for use as a rental unit. “We’ll probably invest in flats in Bergen or Trondheim instead,” said Christian Bustillo after studying Jensen’s new, stricter rules around residential loans.
Not everyone was happy with the new rules aimed at discouraging investors and speculators. “This is idiotic, to put it mildly,” claimed Bård Schumann of the homebuilding company Selvaag Bolig. “It’s ridiculous to impose special rules for Oslo just because the city government doesn’t make enough lots available to build more housing. Investors will simply take their money and put it in other markets. It will suddenly be more interesting to buy rental units in neigbouring communities.” He was glad Selvaag was breaking ground on a new housing development with up to 2,000 planned units at Fornebu, west of Oslo in the suburb of Bærum.