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Stricter borrowing rules in Norway have left higher-income groups struggling to get a home loan through commercial banks, and led to a rush of new applicants to the state-backed housing financier Husbanken. Its loans are easier to obtain, and that’s setting off new fears of lending that’s too risky.

Husbanken’s mortgages, traditionally called astartlån (literally, a “start-loan” for first-time homebuyers) have been aimed at disadvantaged groups. Now, with commercial lenders bound by higher capital requirements an unable to lend more than 85 percent of the price of a new home, even Norwegians with solid incomes often have trouble qualifying. They simply can’t come up with the 15 percent down payment required and don’t have parents or grandparents who can give it to them.

So they’re flocking to Husbanken, which, as newspaper Dagens Næringsliv (DN) has reported in a series of articles lately, can still lend with less capital provided by the buyer.  DN reported one case where a young man with an annual income of nearly NOK 1 million (USD 180,000) financed the entire amount of his apartment’s purchase price through Husbanken.

This has sparked a debate, not only because well-paid borrowers like him were never meant to benefit from Husbanken’s finance offers but also because it defeats the purpose of the higher capital requirements for the banks: To cool down Norway’s hot housing market that has seen huge price hikes for several years in a row.

If there’s any shock to the otherwise strong Norwegian economy, housing prices may fall, leaving lenders holding the bag if mortgage debt is higher than the market value of the home. Interest rates may also rise, causing payment problems even for those with solid incomes today. Worse yet, they could lose their jobs and be unable to make their payments at all.

Norwegian Broadcasting (NRK) reported on Wednesday that several bank executives are raising alarms over Husbanken’s lending practices. Moreover, while the state has the imposed higher capital requirements on banks to avert a debt crisis, it has increased funding for Husbanken.

“One hand of the state doesn’t know what the other hand is doing,” partner Bjørn Erik Øye at analysis group Prognosesenteret told newspaper Dagens Næringsliv (DN). “This isn’t housing policy, it’s a lack thereof.”

Analyst Christopher Rødsten told DN that the system is directly boosting prices. “They called it ‘subprime’ in the USA when the state subsidized loans to people who could not afford one,” Rødsten wrote n a commentary in DN last week. “In Norway we call them ‘starting loans.’ These loans are boosting prices. A lot.”

Conflict
Are Sauren, department director at Husbanken, confirmed that the new capital requirements at banks have boosted demand for Husbanken loans. He told DN that there’s a conflict when the goal is to help as many as possible to own their own home, while at the same time trying to keep housing prices from rising much more. Home ownership is widespread in Norway and viewed as a good way to save money because of rising house prices and beneficial tax rules.

While critical voices are concerned that Husbanken is offering loans to people who instead should be forced to qualify for one through commercial banks, others say people who do not have the opportunity to borrow money at a bank should be offered an opportunity through the state, just like disadvantaged groups are. Still others retort that no one has a “birthright” to buy a home, and borrowing 100 percent, sometimes at subsidized lending rates as well, can backfire badly if the market turns. Norwegian municipalities, which locally administer Husbanken loans, and taxpayers will be stuck with the bill.

DN also reported on Wednesday that some Husbanken loans are also used to refinance consumer debt, including credit card debt. “There are no specific limitations in the guidelines as to what debt can be refinanced,” Sauren told DN.