Norway should extend mortgage restrictions, but remove Oslo measure -FSA (updated)

Sparebanken Ost

28/02/2018 14:10

(Adds quote, background, detail) 
    OSLO, Feb 28 (Reuters) - The Norwegian government should 
extend most of the restrictions it imposed on mortgage lending 
early last year, but a special measure for the capital city can 
be discontinued, the bank regulator (FSA) recommended on 
Wednesday. 
    The central bank backed most of the FSA recommendations, 
although the two differ over how much leeway they think banks 
should have in offering exemptions to borrowers.  urn:newsml:reuters.com:*:nO9N1Q301J 
    The Finance Ministry tightened its restrictions on banks' 
mortgages in January 2017 in a bid to limit household borrowing 
and prevent a potential house price bubble, with a particular 
focus on reining in the Oslo market.  urn:newsml:reuters.com:*:nL5N1E93YZ 
    Housing prices have since fallen, and in November the 
ministry asked the FSA to evaluate whether the rules should be 
adjusted. The ministry will come with its own decision at a 
later stage after a round of public hearing. 
    Norway has the third-highest level of debt-to-income among 
OECD countries behind Denmark and the Netherlands. It was 231 
percent according to the latest OECD data, almost double the 
level in 1995. 
    The rules that were introduced last year, and which were due 
to expire in June, force borrowers to put up more equity when 
buying a home by cutting the maximum loan-to-value ratio of a 
mortgage to 85 percent from 90 percent. 
    This measure should now be extended indefinitely, the FSA 
recommended, adding that it could be altered at a later time if 
necessary.  
    For Oslo however, current rules allow only a 60 percent 
loan-to-value for secondary homes, preventing many investors 
from buying up property, which economists say has contributed to 
a fall in the capital's housing prices.  urn:newsml:reuters.com:*:nL8N1PV2BC 
    "In light of the geographical developments in the housing 
market, the FSA recommends ending the particular Oslo measure," 
it wrote in a letter to the Finance Ministry. 
    Current rules allow banks to make exemptions for up to 10 
percent of borrowers, while the FSA sought to cut this to just 8 
percent. The central bank disagreed, arguing that this so-called 
speed limit seems well-adapted to the current situation. 
    The FSA's proposals were as expected, DNB Chief Economist 
Kjersti Haugland said. 
    "We still expect housing prices to continue to fall this 
year, as we had based our forecasts on continuation of the 
regulation in line with today's proposal," she said, while 
adding that a turnaround may begin towards the end of 2018. 
 
 (Reporting by Camilla Knudsen and Ole Petter Skonnord, writing 
by Terje Solsvik, editing by Gwladys Fouche and Hugh Lawson) 
 ((camilla.knudsen@thomsonreuters.com; +47 2331 6595; Reuters 
Messaging: camilla.knudsen.thomsonreuters.com@reuters.net)) 
 
Keywords: NORWAY FINMIN/HOUSING