Norway’s borrowing guidelines face scrutiny as experts call for regulatory reconsideration

In Norway, stringent guidelines govern borrowing practices, with the government responsible for enforcing these regulations. Currently, individuals must present a minimum of 15% equity to purchase a home and are restricted from borrowing more than five times their annual income.

Moreover, borrowers with loans exceeding 60% of their home’s value are required to make monthly repayments. Martin Blomhoff Holm, an associate professor at the University of Oslo, argues that this requirement is unnecessary, as it can lead to financial difficulties for those who could otherwise manage their payments effectively. He asserts that the government should reconsider these mandatory repayments.

The loan regulations were established in 2015 to curb a surge in housing prices and to manage household debt during a time of low interest rates. These rules dictate the lending practices of banks, focusing on borrowers’ repayment capacity and total debt relative to income (debt ratio), as well as loan amounts in relation to property values (loan-to-value ratio). Borrowers must withstand a potential interest rate increase of three percentage points and a minimum interest rate of 7%. Previously, borrowers had to prepare for a five-point increase.

While banks have some leeway to approve exceptions, Holm insists that the government needs to address the impact of ongoing requirements, particularly the 15% equity threshold, which he believes is unfairly restrictive. He suggests a more equitable approach would focus on the debt-to-income ratio.

Jan Ludvig Andreassen, chief economist at Eika, echoes this sentiment but warns against abrupt changes to lending rules, citing lessons from the past that demonstrate the risks of loosening regulations too quickly. He advocates for a robust strategy that includes increasing housing supply alongside regulatory adjustments to prevent further price inflation in the property market.