Norway’s financial authority (Finanstilsynet) is worried about new figures showing how Norwegians’ household debt remains high and keeps rising. The most vulnerable are both young first-time home buyers with large mortgages and senior citizens who’ve borrowed against their equity.
The annual figures released by the regulators now show total debt as a portion of gross annual income at 342 percent. That’s 8 percentage points higher than in 2018, while there’s also been a sharp increase in household debt that’s more than four times household income. Relatively new regulations hold banks to a maximum of five times, and regulators worry there are far too many bumping right up against that.
High housing prices and a strong desire for home ownership in Norway have fueled the rising debt levels. Even though the government tightened lending requirements by demanding downpayments of at least 15 percent on purchase of a home (capping mortgages at 85 percent), total debt is rising and that’s not healthy, experts claim.
“The rise in debt exposure for first-time buyers is alarming,” Ola H Grytten, a professor at Norway’s prestigious business school NHH (Norges Handelshøyskole) in Bergen, told newspaper Dagens Næringsliv (DN). He noted that it’s rising three times faster than purchasing power, “and that can’t last.”
Concerns are also rising over how debt continues to rise among Norwegians over age 65, most of whom are retired and on relatively fixed incomes. While there’s been a rise in those taking out “senior-” or home-equity loans to supplement income for travel or other recreational pursuits, Thea B Kloster of Finanstilsynet ties much of the seniors’ rising debt level to parents and grandparents helping the family’s younger generation buy a home instead of renting.
The greatest concerns, however, are swirling over the young borrowers who can get hit by interest rate increases and who don’t usually have much financial reserves in the form of savings. Very few Norwegians opt for higher fixed-rate loans in Norway. Those under age 25 have an overall debt-equity ration of 387 percent, according to the new report.
Big mortgages too common
Grytten worries that it’s become too common to take up large, multi-million kroner mortgages. “There’s a danger that borrowing up to the maximum is becoming the norm,” Grytten said.
Norway is now tied with the Netherlands in having the highest household debt among the OECD countries, exceeded only by Denmark, where more buyers opt for fixed-rate loans and aren’t as exposed to interest rate hikes.
“We’re a nation of gamblers who haven’t locked in our interest rates,” editorialized newspaper Dagsavisen. “We’re optimists, or else bloody naive.”