February 4, 2023

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Finanstilsynet defies government - relaxes stress test requirements in lending regulations

Finanstilsynet defies government – relaxes stress test requirements in lending regulations

Instead, the government is going in the opposite direction, relaxing loan rules on one important point: how much interest rate increases borrowers have to put up with. From January 1, banks must only calculate an interest rate increase of three percentage points in a so-called stress test, compared to five percentage points today. However, banks are obliged to ensure that borrowers can afford 7 percent housing interest in any case.

– It will be much easier to get a mortgage, says chief economist Sarah Midtgaard at Handelsbanken about the change.

In addition, the government is eliminating the requirement for secondary homes in Oslo. Until now, you had to have a 40 percent share capital to buy a secondary home in Oslo, that is, a second home. This has now been removed so that the equity requirement is 15 per cent, as is the case for primary dwellings.

– The high level of debt in Norwegian households remains a weak point in the financial system. Therefore, we are continuing the requirements for banks’ lending practices, but we are making adjustments to adapt the requirements to the economic situation, says Finance Minister Trygve Slägsvold Widum (SB).

The finance ministry announced the easing on Friday, two months after the government delivered proposals on loan restrictions by Norway’s financial watchdog, which met strong opposition, particularly from the banking industry and estate agents.

Economist: Curb the decline in housing prices

Handelsbanken’s chief economist believes the changes will cause house prices to fall less than they otherwise would, as the stress test will become so stringent when one has to take into account five percentage points on the housing interest rate which could already be 4.25 percent.

Midgard says it helps curb the decline in the housing market.

The housing market turned around sharply when Norges Bank began large interest rate hikes in September, and has fallen sharply in the past three months.

Finanstilsynet believes that Norwegians have unreasonably high debts, and so advised the government to reduce the maximum borrowing limit from 5 to 4.5 times gross income.

In addition, the supervisory authority has proposed a sharp reduction in banks’ ability to deviate from the requirements of the lending regulations if borrowers are still fit enough to serve – from the current 10% to 5% of all loans.

But the government says no to each of these austerity measures. Thus, the maximum lending limit and the grace period available to banks will be kept unchanged from next year.

This is in line with the wishes of many people who have spoken out against the authority’s proposal in the consultation round, including the Bank of Norway and several economists. At the same time, many industry players have called for an easing of loan requirements in light of the fall jump in interest rates and accelerating inflation, as a counterbalance to banks that are already starting to tighten. DN recently wrote that many bank customers have been told this Sell ​​the house before they can get a mortgage.

Cheer broker

– That was great, exclaims manager Carl Giving of the Norwegian Estate Agents Association about the government’s decision.

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– We need regulation that has contributed to curbing the growth of debt. There is no reason to cancel it because interest rates are going up. But at the same time, I’m a little surprised they’re reducing stress test requirements from five to three percent, Gifeng says.

It’s a relief that comes in handy for many who are now finding it difficult to get bank financing, according to the top broker.

– This is a real Christmas gift for many families who are in the mode of making a home change, says Geving.

Eiendom Norge, another brokerage association, says it has approached the government with the issue of the impact of maintaining strict stress test requirements after the sharp rise in interest rates.

– This would contribute to the decline in housing prices. Henning Lauridsen, CEO of Eiendom Norge, says cutting the requirement to three percent solves the problem.

Top bank: wise to ease orders now

– I’m very happy. I’m really happy, says Privatmegleren CEO Grethe Meier.

The government should be commended for listening to us. There will certainly be lower house prices for some time to come, but this will help ensure continued good activity in the housing market, says the top broker.

She believes the change is particularly good news for first-time buyers.

– Banks reserve existing opportunities to make exceptions to regulatory requirements, and it’s easier to relax and get what you need in the form of loans to buy your first home, Meyer believes.

The banking industry is also satisfied with the easing. DNB’s retail chief executive, Ingjerd Blekeli Spiten, believes it is important that the government not give Finanstilsynet a tightening hearing.

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– DNB believes we are approaching the time when regulation should be eased or stopped. However, we are quite satisfied that the Finance Minister rejected dramatic proposals for tightening, and that moderate easing was introduced adapting to the economic situation, top DNB writes in an email to DN.

Finans Norge, which regulates the entire banking industry, calls it a “prudent and correct assessment” by the government.

– The locations of the lending regulations are now changed. Rising interest rates and the cost of living will hinder price developments in the housing market and demand for loans, while the new Financial Agreements Law will discourage large borrowing by vulnerable households. It’s a reasonable assessment to ease serviceability requirements, as well as raise loan-to-value ratio requirements for loans with a mortgage on a secondary home in Oslo, says Erik Johansen, director of banking and capital markets at Finance Norge.(Conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We’d like you to share our statuses using links that lead directly to our pages. Reproduction or other use of all or part of the Content may be made only with written permission or as permitted by law. For additional terms look here.