A combination of stable and probably lower interest rates next year, along with a looming reduction in capital demands for first-time homebuyers, is likely to ease entry requirements into Norway’s high-priced housing market. Even the country’s central bank thinks its key policy rate will be reduced in March.
Ida Wolden Bache, governor of Norges Bank, didn’t offer any specific Christmas gifts to would-be homeonwers as she announced the bank’s last interest rate decision of the year on Thursday. The important policy rate will remain at 4.5 percent, higher than in many other countries both in Europe and abroad.
Bache did say, however, that “the time to begin easing monetary policy is soon approaching” after months of stability at the current level. The central bank’s committee in charge of monetary policy and financial stability also stated that based on its current assessment of the economic outlook, “the policy rate will most likely be reduced in March 2025.”
It’s been kept at 4.5 percent since last December, part of efforts to cool down the Norwegian economy and rein in inflation. Now, with inflation falling “markedly,” it’s much closer to the central bank’s goal of just 2 percent. Bache also seemed pleased that the Norwegian economy is “holding up better than previously projected.” Norway’s krone tumbled again, with a US dollar costing as much as NOK 11.44 by Thursday afternoon, but some think that can be good for an export economy like Norway’s, which, for example, sells its oil in dollars.
Most of Norway’s major banks expect from between two- to four interest rate reductions next, while the country’s state statistics bureau SSB expects fully five in 2025. Even if they’re only quarter-point cuts at a time, that could bring the policy rate down to 3.25, putting home mortgages within the reach of more prospective homebuyers and cutting monthly costs for most Norwegian households.
The banks, meanwhile, will also be able to lend out 90 percent of the purchase price of a home as of January 1. State regulations have limited them to 85 percent, part of efforts to reduce high debt levels in Norway and ward off defaults.
Bache and her colleagues at the central bank asked the government to evaluate the capital reduction last autumn, while other financial regulators warned against it. Norway’s Labour-Center government ultimately sided with Norges Bank, claiming it would contribute to allowing more would-be homeowners into the housing market.
“I want it to be safe and secure to own your home in Norway, and that as many as possible can have the opportunity to buy,” Finance Minister Trygve Slagsvold Vedum said last week. The move was widely applauded, and gives the banks themselves more say in deciding on the credit-worthiness of Norwegian borrowers.
Others worry it will send housing prices even higher, especially in Norway’s big cities where there’s an imbalance of supply and demand. In the rest of the country, though, it’s the down-payments that are hardest to come up with for first-time buyers. That applies especially to those who don’t or can’t get any help from their families by applying to the so-called “Parents’ Bank.”
The real estate industry was predictably in favour of the reduction in capital demands, and pleased by the prospect of more qualified buyers. Instead of having to save up NOK 600,000 to buy a home priced at NOK 4 million (USD 400,000), prospective buyers will need only NOK 400,000 up front, in addition to other fees.
NewsinEnglish.no/Nina Berglund