Personal Debt in Norway: What is Being Done to Address it?

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Personal Debt in Norway: What is Being Done to Address it?

In 2018, household debt to income ratio in Norway reached an all-time high at 202 percent. This is quite a stark contrast from its position in almost 2 decades ago where the ratio stood at 118.5 percent. In other terms, household debt accounted for 104.5 percent of the country’s GDP (USD 437 billion) by December last year and the upward trend looks set to continue.


As consumers continue to grapple with the consequences of carrying such high debt obligations, activity in the loan market has skyrocketed, banks have introduced several interest rate increases and authorities have stepped in to attempt to manage the growing situation. However, what remains a central part in solving the rising debt levels is dissecting exactly how households have gotten to this point before a path forward can be plotted.

What Is Driving The Ballooning Debt?

Consumers in Norway are relying on personal debt more. Applications for personal loans are rising; particularly unsecured loans. According to a 2018 Norwegian Institute for Consumer Research study, it was shown to be used for either refinancing of current debt, an increase of home value through renovations or for entry into the housing market.

In fact, there is now a circle that consumers find themselves in as their debt continues to breed more debt. Norwegians are living beyond their means and more specifically, their annual household income and turning to debt options to fund their lifestyle; ignoring the consequences of such obligations.

Over 17 percent of households in Norway now have household debt that is three times the value of their annual income and is seen to be particularly prevalent in households with young children and couples. In that key stage where young families are expanding and building their lives, important decisions such as securing their own home are coming with a higher price.

Around 70 percent of households own their homes, something which means the mortgage market has been awash with activity. In addition, housing prices continue to climb in reaction to rampant demand and other fostering conditions, this means that households are looking at higher purchase prices and mortgage payments to get onto the property market.


 

Can We Stop It?

Much of the focus is now shifting to what can be done to help the rising debt levels and get households to eventually match their income to their spending. One of the most recent measures includes the authorities stepping in to limit the growth of credit cards and other high-interest consumer debts.

According to the new limits set for banks and lenders, credit institutions are not allowed to grant loans unless applicants can handle a 5 percent rise in interest rates.

However, part of the responsibility also lies with the consumers. While mortgage rate cuts and a cooled off housing market will go a long way in correcting the growing personal debt issue, young households can incorporate frugal financial tips and habits to help them make the right decisions when it comes to their money.

Financial planning is of utmost importance if individuals and their families are to plan and achieve their monetary targets and dreams. Getting comfortable with budgeting can help them maximize their income while an emergency fund can reduce their reliance on debt. Refinancing your home or consolidating existing debts can secure lower interest rates for households and give them more leeway with repayments. Request for credit card reduction and payment plans with creditors can also lend itself in the reduction of household debt.

What is more important though is how the country can close the gap between income and debt, as Norway continues to widen its pay gap. The highest earners now earn more than 4 times more than lower earners and the highest paying bracket has been the one to grow the most.

The cost of living overall continues to be significantly higher yet income increases have not been applied across the board to keep up with this. Whether the planned initiatives will work remains to be seen. However, one thing is clear: only with active changes by both the government and consumers can the pattern of personal debt change



This article is written by our contributor, Karoline Gore, to be shared with the esteemed readers of Norway Today. Karoline is a freelance writer and editor.

© Karoline Gore / #Norway Today
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