Tougher home finance rules loom

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The government and Norwegian Parliament look inclined to go along with proposed, tougher regulations on how banks can lend money to homebuyers. Equity requirements may be raised, despite objections by lenders and major housing associations.

Norwegian financial authorities at the state regulatory agency Finanstilsynet think bank employees currently have too much freedom when approving home loans. Alarmed by the debt crisis elsewhere in Europe, high housing prices in Norway and the quantity of loans made with small down-payments, the authorities have proposed tougher regulations aimed at averting debt problems among borrowers.

Higher down-payments demanded
Late last month, Finantilsynet proposed new rules requiring banks to raise equity/down-payment requirements from 10 percent to 15 percent of a home’s market value. That will make it tougher to qualify for loans, especially for first-time buyers, but the regulators seem to want to prevent borrowers from taking on too much debt and protect the banks against loan defaults.

After spending the past six months examining lending activity in Norway, the authorities uncovered some worrisome statistics: 48 percent of borrowers under age 35 had home loans amounting to at least 90 percent of the home’s market value. If housing prices fall, the percentage will rise. Young homebuyers have also been borrowing an average of 3.4 times the amount of their annual income, more than what’s generally recommended but a result of high housing prices in most Norwegian cities.

Regulators also determined that at least 10 percent of all current mortgage holders won’t be able to handle a rise in interest rates of four to six points, reported Dagens Næringsliv (DN). Interest rates are currently at record low levels and are expected to rise. At some banks, they already are rising because of tighter money supplies resulting from the debt crisis.

Young buyers risk being frozen out
Young would-be homebuyers fear they’ll have to keep renting if the new rules are approved, and both OBOS and housing cooperative NBBL (Norske Boligbyggelag) have asked the government to block Finantilsynet’s proposals. Bank organizations don’t think the proposals will serve the authorities’ other aim, to lower housing prices by eliminating some of the demand.

In a letter to the government this week, both OBOS and NBBL argue that boosting capital requirements won’t lower prices, will instead reduce home construction and will hit those in need of housing the hardest. They also said the proposal will mean only the most affluent will be able to buy homes.

The head of the finance committee in Parliament, Torgeir Micalsen of the Labour Party, has said it sounded sensible to require a larger margin of safety in home loans. Other politicians in parliament, though, are supporting the regulations as well but don’t necessarily agree a new law is needed. A leading politician for the Socialist Left party (SV), Heikki Holmås, thinks existing rules should apply for borrowers opting for fixed-rate loans. Per Olaf Lundteigen of the Center Party told Norwegian Broadcasting (NRK) on Wednesday that it’s “unfortunate” if more first-time home buyers are forced out of the market but agreed that stricter equity requirements could help Norway avoid debt problems.

Views and News from Norway/Nina Berglund