Norway property bubble risk raises need for tougher bank rules, fsa warns

Norway’s financial regulator may force mortgage lenders to adopt stricter rules in an effort to prevent the biggest household debt burden in more than two- decades from fanning a property market bubble.

“The more indebted the households become and the higher the property prices go, the greater is the potential for a setback,” Morten Baltzersen, who took over as director general of the Oslo-based Financial Supervisory Authority last month, said in an interview. “I’m not in a situation where I can state there’s a bubble, but the longer these developments go on, the further it goes, the higher is the risk of a bubble.”

Norway’s $535 billion sovereign-wealth fund has so far shielded the country from the worst of Europe’s debt crisis. The world’s second-richest nation after Luxembourg boasts Europe’s lowest unemployment rate, at 2.7 percent, with estimated wage growth of more than 4 percent this year. That’s fueling demand for credit and pushing up property prices as the central bank keeps interest rates near record lows.

House prices jumped an annual 9.4 percent in August, accelerating from 8 percent growth last year, according to the country’s Real Estate Brokers Association. Household credit rose an annual 7.1 percent in July, hovering at a 2 1/2-year high, Statistics Norway said. The central bank estimates consumer debt burdens will grow to more than 204 percent of disposable income next year, the highest since at least 1988.

Source: Bloomberg.com