– Has raised house prices – E24

– Based on these figures from Finanstilsynet, I think it is surprising how many have stated that they believe that the temporary change in regulations has not affected house prices, says chief economist Nejra Macic at the E24 Forecast Center.

She herself has no doubts about what the government’s crown measures have led to:

– It is difficult to quantify the effect, but I think it has definitely contributed to higher growth in house prices, especially in Oslo.

The government doubled the exception quota

As a general rule, mortgage applicants must meet rigid requirements for capital, debt ratio, and service capacity. But banks have been allowed to allow up to one in ten mortgages to bypass the requirements, as long as it is justifiable.

When the pandemic hit and many workers were laid off in March, the government decided that the ceiling for these exceptional mortgages should be doubled from 10 to 20 percent of total loans.

Figures from Finanstilsynet now show how bank credit locks have been opened in the wake of the change.

Loan growth at 20 out of 24 banks

It is especially in the capital, where house prices are higher and thus borrowing requirements are more difficult to meet, that banks have thrown themselves to their most flexible room for maneuver.

Up to 20 of the 24 banks in Oslo increased their use of the exemption fee from the first to the second quarters, compared to 17 of the 24 banks in the rest of the country.

On average, Oslo banks have granted exemptions from loan requirements for 8.6 of their loans this quarter. This is more than the eight percent ceiling generally applied in Oslo, and a 2.7 percent increase from the first quarter.

Finanstilsynet notes that there are large variations between individual banks.

Several banks in Oslo have been well above 12 percent in the last quarter (see chart above).

One of the banks has used the exemption fee for more than 15 percent of its mortgages, where previously the bank only deviated from loan requirements for six percent of its loans.

It is not known which bank it is. Finanstilsynet rejected E24’s request to list the use of the flexibility fee among the named banks, as this is considered a trade secret.

– Has raised prices

House prices have risen for five consecutive months. Macic at the Forecast Center says the biggest contributor to this is likely stripping Norges Bank’s key policy rate to zero.

But these figures show that there are a number of fringe buyers that were affected in the second quarter and that have helped drive prices higher, he adds.

The Finance Ministry emphasizes to E24 that the objective of the crisis was not to stimulate the housing market, although this appears to have been a consequence.

– When we temporarily increased flexibility fees in March, it was to put banks in the best possible position to help credit customers through a period of uncertainty and demanding, Secretary of State Geir Holen writes to E24.

– This could apply, for example, to borrowers who want to refinance the loan due to a drop in income or the self-employed who need to free up equity for housing during a period without allocation.

The government has now decided to leave the crown crisis measure on the shelf following a recommendation from the Norwegian Financial Supervisory Authority.

After the third quarter, exceptional opportunities for banks will be cut in half to 10 percent.

Fear of squeezing

The decision does not sit well with Erik Johansen, director of banking and capital markets at Finans Norge. He believes that the banks’ increased room for maneuver was important and that the government is now eliminating it too abruptly.

“Given that financing certificates are issued with a duration normally of three months, and because a good number of banks have used the most flexibility, some may have to adjust inappropriately in the fourth quarter to ensure they do not commit violations. “Johansen told E24.

He believes that the government should gradually reduce the flexibility quota.

– The actual flexibility for some banks may be very small in the fourth quarter, with the consequences it may have for affected clients, says the top of Finans Norge.

The Ministry of Finance defends the decision and believes that the crisis measure is no longer necessary.

– There was no reason to wait

– Fortunately for most people the situation is more normal now than in the first months after the closure of Norway. Many of those laid off have returned to work. So it also makes sense for mortgage regulations to return to normal. Also on this occasion, the Ministry of Finance follows the advice of the Danish Financial Supervisory Authority, emphasizes Holen.

Harald Magnus Andreassen, chief economist at Sparebank 1 Markets, believes the government is doing the right thing.

In any case, he believes that the hardening should have come earlier.

– The demand for mortgages is simply too strong. It was right to both lower interest rates and ease regulations this spring, because the uncertainty surrounding the consequences of the coronavirus was so great. But now we’ve seen several months of house price growth significantly stronger than Norges Bank had expected, Andressen notes.

– There was no reason to wait to tighten the regulations. And there was no reason for a smoother transition, either.