Regulation on requirements for residential mortgage loans

Published under: Solberg's Government

Publisher Ministry of Finance

The Ministry of Finance has today adopted a regulation on requirements for residential mortgage loans. The regulation is based on current guidelines from the Financial Services Authority. The aim of the regulation is to contribute to a sustainable development in the residential mortgage market. The regulation takes effect from 1 July 2015.

- It is important that we have a framework for banks' residential mortgage lending practices, which contributes to a sound and stable development in the Norwegian economy. I am confident that Norwegian lenders are prudent in their individual credit assessments, but the strong growth in lending and household indebtedness can be a risk factor for the Norwegian economy, says Minister of Finance Siv Jensen.

The regulation caps the loan-to-value ratio on residential mortgage loans at 85 percent. Furthermore, the regulation stipulates that lenders should make allowance for an interest rate increase of 5 percentage points when assessing a borrower’s debt-servicing ability. For residential mortgage loans with a loan-to-value ratio above 70 percent, the regulation requires lenders to demand repayments.

To ensure that lenders are able to offer loans to creditworthy borrowers, the regulation allows for 10 percent of the volume of a lender’s approved loans per quarter to be loans that do not meet the regulatory requirements for debt-servicing capacity, loan-to-value ratio or repayments. To ensure competition in the market for residential mortgage loans, loans that are moved from one bank to another, are not counted in the 10 percent quota.

The regulation will be continuously evaluated in the light of regional developments in the housing market, household borrowing, and the impact on competition between lenders. The regulation will cease to have effect on 31 December 2016, unless an assessment shows the need for the regulation to be extended.