Norway to boost housing supply

The Norwegian government announced plans on Monday to boost the supply of housing and impose some mortgage restrictions to help curb a rapid rise in house prices that has raised fears of financial instability.

House prices have jumped 7.5 percent in the last 12 months and the ratio of household debt to income is above 200 percent, one of the highest levels in Europe.

"We want to put in place rules that will allow the construction of more houses that cost less," Finance Minister Siv Jensen told a news conference, adding that the new policy framework would contribute to a "sound and stable" economy.

"I am confident that Norwegian lenders are prudent in their individual credit assessments, but the strong growth in lending and household indebtedness can be a risk factor for the Norwegian economy," she said.

Fearing a housing bubble and financial instability, Norway's bank regulator in March proposed tighter mortgage regulations that would close loopholes that allow banks to deviate from lending guidelines. It also called for more strenuous stress tests on borrowers.

Among its proposals, the Financial Supervisory Authority (FSA) said the maximum loan to value ratio for a mortgage should remain at 85 percent and that the room to deviate from this rule should be sharply reduced.

Jensen said the government would stick to the 85 percent rule, but said up to 10 percent of a bank's new loans would be allowed to deviate from the norm.

The regulator had also said it planned to require banks to test whether a borrower can manage a six percentage point rise in interest rates, above a previous test of five percent, but Jensen said she would keep the rule at five percent.

The FSA had also asked for new rules requiring annual installment payments from the first year on all mortgages with a loan-to-value ratio above 65 percent. The government said it would set the bar at 70 percent.

Norwegian economic growth, hammered by a sharp fall in global oil prices, is expected to halve this year to just over 1 percent, which will probably persuade the central bank to cut interest rates.