Many Norwegians having trouble with interest rates

Interest rateNorges Bank. CEO Øystein Olsen. Photo Norges Bank

Never have Norwegians had more debt, and never have interest rates been lower. Increase in interest rates of more than 1% could give one in five people trouble with the loan, shows a YouGov survey carried out on behalf of Nordea.

 

‘’It’s worrying. With today’s record low interest rates, most of us should be able to withstand a robust interest rate rise, which is also the prerequisite for obtaining a mortgage’’, said Nordea’s consumer economist, Elin Reitan.

“We will not forget if interest rates double in the long run,” she added.

The survey revealed that 3% of the 772 respondents who have a mortgage can’t tolerate a rate increase beyond the current level. 17% stated that they are able to
withstand a rate increase of 1% or less.

One in five can tolerate an interest rate increase of between 1.5 and 3%, while almost one in five can withstand an interest rate increase of between 3.5 and 5%, according to the survey.

A total of 1,036 people participated in the survey.

Does not count on interest rate hike Banks won’t grant loans unless the borrower is able to withstand an interest rate increase of at least 5%.

In the same survey, more than half of respondents with mortgage loans haven’t calculated what an interest rate increase will mean to their economy.

“It’s a paradox that so many people say they can’ tolerate an interest rate rise, but do not worry about how an interest rate rise will affect their economy,” said Reitan.

In a similar study just before Christmas, carried out by Respons Analyse for Sparebank 1, 27% of those who have mortgage loans indicated that their economy will withstand an interest rate increase of 5% or more.

7% replied that they aren’t able to withstand higher mortgage rates than today, and an equally large percentage said that they can withstand an increase of up to 1%.

Notice of interest rate increase

Norges Bank and the major analysis communities in this country have long concluded that the interest rate base has been reached. Most forecasts point in the direction of a rate hike by the end of 2018, or early next year.

The main reasons are better times for the Norwegian economy, and the rise in interest rates internationally. DNB Markets estimated in its latest forecast that the policy rate will gradually increase to 1.75% by the end of 2020.

At the same time, Norwegian household debt has continued to increase sharply in recent years. Almost 900,000 households now have a debt that is three to five times greater than disposable income, according to the Danish Financial Supervisory Authority.

Warned

‘Finanstilsynet’ have repeatedly warned that strong interest rate hikes will affect debt-strung Norwegian households.

‘’If interest rates on bank deposits and debt increase by 4%, interest rates will increase significantly’’, noted the audit in its latest report on financial vulnerability before Christmas.

For a household with average income, wealth and debt in the age group 30-39 years, an interest rate increase of 4% will lead to a sharp increase in interest rates, from 11 to 23%.

In a similar example, for a household with a debt burden of more than 500%, interest rates will rise from 21 to 45%. This means that almost half of available after tax income will be payable to interest expenses on debt.

 

© NTB Scanpix / #Norway Today

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