Norway’s economy doesn’t face any crisis, Finance Minister Siv Jensen has said, but she’s growing increasingly worried about household debt levels in the country. Ever-rising housing prices have prompted buyers to take on bigger mortgages than ever before, and she’s now searching for ways to cool down the market.
“It’s always been true that finance ministers go around with a worried frown,” Siv Jensen told newspaper Aftenposten over the weekend. “I don’t want to spread fear. When you see an imbalance taking shape, though, it’s important that we evaluate what we should do.”
Jensen has asked the state banking regulator Finanstilsynet to examine various measures to reduce overall debt levels in Norway. She says it’s too early to say what steps might be taken – she’s just trying to avoid the proverbial worst case scenario of households unable to meet loan payments.
Aftenposten reported that in January, Norwegians had collective residential debt of NOK 2,189 billion, up 25 percent just in the past three years. An estimated 7.5 percent of Norwegian households’ have debt that’s more than four times total household income. That’s nearly twice the level it was 10 years ago.
With interest rates at record lows and housing prices at record highs, the debt level just keeps rising. Jensen has two simple pieces of advice to those in the market and needing to borrow money: “Don’t borrow more than you can afford to pay back, and be prepared for the unexpected, like an increase in interest rates.”
Jensen has six major reasons to be worried, according to Aftenposten:
*** Housing prices have been rising faster in Norway than anywhere else in the world, up 8 percent in the past year alone. In Oslo, fully 80 percent of all condominiums on the market sell for higher than their appraised value.
*** Housing prices have risen twice as fast as salary levels, and now salaries look set to flatten out. Annual wage negotiations launched on Monday are expected to result in moderate pay raises at best.
*** In order to afford higher housing prices, buyers borrow more money. Norwegian household debt has risen 20 percent in the past three years and 120 percent in the past 10 years.
*** Norwegians have grown accustomed to historically low interest rates that have enabled them to qualify more easily for loans and borrow more money. If interest rates rise, mortgage payments will rise with them and may suddenly be unaffordable.
*** More Norwegians are borrowing far too much, with 4 percent of households holding debt that’s five times the amount of household income.
*** Some households are more vulnerable than others, especially those with one wage earner and small children. They generally have the highest debt in relation to income.
The board of Norway’s central bank is due to meet later this week and many analysts expect interest rates will be cut yet again. That may only fuel more borrowing but banks have been urged to tighten income requirements.
“If many households have problems, and housing prices fall, it won’t just be difficult and painful for them,” Jensen said. “It will be major problem for society.” And one she’s trying to avoid.