Developments in housing prices and debt are closely linked. Both have risen faster than the household income during the last couple of years. This has resulted in a current situation where homebuyers are more vulnerable to rising interest rates and loss of income.
Increased consumer debt
During 2017 Norwegian households increased their debt by 6.5 percent. This is a small increase from the annual growth of 6.4 percent the year before. The growing household debt is seen as the main threat to financial stability.
The debt ratio is highest in the big cities, and the rising consumer debt is seen as a direct consequence of the high housing prices. Consumer debt is also a growing factor to as why banks are rejecting mortgage loans. While the total debt ratio is at 6.5 percent, the consumer debt has risen by 14-15 percent.
As a result of higher living costs and an expensive housing market, we now see a young generation with different relationship to consumer debt. Many youngsters don’t think about the consequences of high-interest loans – until they get rejected at the mortgage loan queue.
The increased consumer debt is not solely tied to Norwegian households. We see the same tendency in U.S. household debt.
Stricter mortgage loan regulations
As a result of the rising household debt, the government has introduced stricter regulations for housing and mortgage loans. This includes a requirement that states that you can only borrow a maximum of five times your own income when purchasing your primary residence.
The new regulations are meant to avoid the risk of rising housing prices and debt ratio in the national economy. The regulations had an immediate effect on the housing market as soon as they were enforced, with a visible drop in validated mortgage loans.
However, the regulations are only temporary, and will be revised in the summer of 2018.
How to reduce your debt?
To get into the housing market, you most likely have to get rid of, or at least better interests on, your consumer debt. One way to do this is by refinancing your debt. Refinancing is the replacement of an existing debt obligation with another debt obligation under different terms.
A loan might be refinanced for various reasons:
To take advantage of a better interest rate
To reduce the monthly repayment amount
To consolidate other debts into one loan
To reduce or alter risk
To free up cash
The latter three are usually the main reason why people with financial difficulties seek refinancing. Refinancing can help reduce your monthly repayment obligations and make the management of your debt easier. For instance, if you consolidate high-interest debt, such as credit cards, into your mortgage loan, you are able to pay the remaining debt at mortgage rates over a longer period.
The same goes if you consolidate your credit card debt into a new consumer loan, which usually have a 10-20 percent lower interest rate. This is especially profitable if you are dealing with several small, high-interest loans.
Axo Finans is a financial agent that offers refinancing loans to their customers. one of the greatest benefits of using a financial agent when you are looking for a loan, is that you get your application sent to several banks at once. Not only will this save you valuable time, you will also get the best offer on the market – according to your personal situation.