Norway seeks to curb household debt, slow housing boom

View of the city of Bergen, Norway, on September 12, 2014. Norway's financial supervisory authority proposed to tighten mortgage lending rules in a bid to curb record-high household debt and housing prices (AFP Photo/Eric Piermont) (AFP/File)

Oslo (AFP) - Norway's financial supervisory authority proposed Tuesday to tighten mortgage lending rules in a bid to curb record-high household debt and housing prices, which it said threatened the oil-rich economy.

"This course of action is necessary in order to remove or strongly curb banks' scope to deviate from the standards for residential mortgage lending practices," the Financial Supervisory Authority of Norway said in a statement proposing new lending regulations.

Riding a wave of strong economic growth fuelled by the country's sizeable oil revenues and low interest rates, Norwegian household debt has soared to a new record at 2.3 times annual disposable income.

House prices have more than doubled in the country since 2003 and rose by 8.7 percent in the last 12 months, while household debt grew by 6.2 percent.

That led Norway's finance ministry to request new proposals to "dampen growth in house prices and credit growth in the Norwegian household sector".

"There is reason to be a little concerned about the household debt trends we have seen over time," Finance Minister Siv Jensen told reporters.

"It's first and foremost a challenge for the most vulnerable who would be affected by a situation where there is an unexpected turn of events."

The authority has proposed a series of measures that would make it harder to get a home loan in Norway, including a minimum annual repayment level of 2.5 percent for debts over 65 percent of the property's value, and tougher stress tests of borrowers' ability to repay.

Nonetheless, Erica Blomgren, an economist at SEB bank said the proposed new rules were "surprisingly soft".

Analysts have predicted a new key interest rate cut on Thursday at the next meeting of Norway's central bank.

The bank already shaved its rate by 0.25 points to 1.25 percent in December, a decision which took most economists by surprise.