New regulation on requirements for residential mortgage loans

The cap on the loan-to-value ratio on residential mortgage loans remains at 85 per cent in the new regulation. In accordance with the Financial Supervisory Authority’s recommendation, the maximum loan-to-value ratio for home equity credit lines is lowered from 70 per cent to 60 per cent in the new regulation. Accordingly, the requirement on amortisation of repayment loans is to apply to all loans with a loan-to-value ratio above 60 per cent, compared with 70 per cent under the current regulation.

In accordance with the Financial Supervisory Authority’s recommendation, the current requirement that lenders should make allowance for an interest rate increase of 5 percentage points when assessing a borrower’s debt-servicing ability is supplemented by a provision limiting the borrower’s collected debt to five times gross annual income.

The provision that allows for a certain amount of a lender’s approved loans can be loans that do not meet all requirements in the regulation, is retained. Outside Oslo this quota is retained at 10 per cent of the volume of a lender’s approved loans per quarter. In Oslo the quota is reduced to 8 per cent. In addition, the new regulation caps the loan-to-value ratio on secondary homes in Oslo at 60 per cent.

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 Supervisory Authority. The regulation took effect from 1 July 2015 and will be in force until 31 December 2016.

On 8 September 2016 the Ministry of Finance issued a public consultation on a recommendation from the Financial Supervisory Authority to retain and amend the regulation. The public consultation ended on 24 October 2016.