New regulation on requirements for residential mortgage loans

The Ministry of Finance has adopted a new regulation on requirements for new residential mortgage loans.

The new regulation replaces the current regulation, which is set to expire at the end of June 2018. The new regulation takes effect from 1 July 2018 and will be in force until 31 December 2019.

The cap on a borrower’s total debt (debt-to-income, DTI) remains at five times the borrower’s gross annual income in the new regulation. Furthermore, the caps on the loan-to-value (LTV) ratio on residential mortgage loans and home equity credit lines remain at 85 and 60 per cent respectively. The amortization requirement for loans with a LTV-ratio above 60 per cent, and the provision that lenders should make allowance for an interest rate increase of 5 percentage points when assessing a borrower’s debt-servicing ability, both remain unchanged in the new regulation.

The regulation allows a certain amount of a lender’s approved loans to deviate from the requirements in the regulation. In the new regulation, this quota remains at 10 per cent of the volume of a lender’s approved loans outside Oslo.

When the current regulation was adopted in December 2016, the Ministry of Finance introduced requirements in the regulation specific to Oslo. In Oslo, the quota for loans that do not meet all requirements in the regulation was reduced to 8 per cent. In addition, the cap on the LTV-ratio on secondary homes in Oslo was reduced to 60 per cent. Both requirements have been retained in the new regulation.

In the new regulation, equity credit release agreements are exempted from the amortization requirement, the DTI-limit and the debt-servicing ability requirement.

Background
In June 2015, the Ministry of Finance adopted a regulation on requirements for new residential mortgage loans. The regulation was based on existing mortgage lending guidelines from the Financial Services Authority. The regulation took effect from 1 July 2015 and expired 31 December 2016. The Ministry of Finance extended and amended the regulation on 14 December 2016. The new regulation took effect 1 January 2017 and will be in force until 30 June 2018.

On 28 February 2018, the Ministry of Finance issued a public consultation on a recommendation from the Financial Services Authority to extend the mortgage regulation with some adjustments. The public consultation ended on 11 April 2018.

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