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    ESRB Notified on Changes to Mortgage Regulation in Norway Amid Crisis

    October 22, 2020

    ECB and ESRB were notified by the Central Bank of Norway about extension of a measure regarding altered requirements for new residential mortgage loans. As per the notification, the Ministry of Finance has extended the temporary changes in the mortgage regulation in response to the COVID-19 pandemic. The Ministry of Finance decided to continue the increased flexibility quotas in the mortgage regulation until the third quarter of 2020. The intended effect of the measure is to alleviate the financial stress mortgage holders are facing in the current crisis.

    The mortgage regulation allows a certain amount of a lender’s approved loans to deviate from the requirements in the regulation. This quarterly quota is 10% of the volume of a lender’s approved new mortgages outside Oslo and 8% for new mortgages in Oslo. In April, the Ministry of Finance announced temporary measures to increase both the quotas to 20% for the period of April 01, 2020 to June 30, 2020. Central Bank of Norway notified ECB and ESRB that the Ministry of Finance decided to extend the temporary increase in the quotas until September 30, 2020.

    The main purpose of the change in the regulation is to strengthen the ability of banks to help their customers through the crisis. The outlook for the Norwegian economy indicates that many mortgage customers will have an increased need for flexibility. This may include self-employed who have provided housing as collateral for loans and are now in need of capital. If banks want to provide new mortgage customers with the possibility to delay the payment of installments for a certain period, they must use the flexibility ratio. Likewise, they must use the flexibility ratio if they want to provide the same opportunity to customers who refinance an existing mortgage.

     

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    Keywords: Europe, Norway, Banking, COVID-19, Macro-Prudential Measures, Central Bank of Norway, Credit Risk, RRE, Residential Mortgage Lending, ECB, ESRB

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