The Upward Trend of Personal Debt in Norway

by Havard Jonassen

Until Debt Tear Us Apart

Norway has recently begun emerging from its low oil price-driven economic slump. Private consumption and residential investments were credited as the main drivers of this news. But household debt is at an historical high, sitting at 215% of disposable income and even higher for young people.

Norwegians’ debt burden has built up over decades, fueled by fast growth in house prices. Since a banking crisis in the early 1990s, the price of Norwegian homes has risen almost continuously, and increased particularly rapidly last year. Recent regulation changes meant to curb Norwegian mortgage debt are expected to slow but not reverse the climbing house prices.

Credit Cards and Quick High Interest Loans

Housing market aside, there is another debt trend high on the government’s agenda. Norway’s Financial Supervisory Authority (FSA) this spring proposed regulations to limit the amount of credit card debt and other high-interest loans banks can offer to individuals. The scale this type of consumer credit “remains modest” (3% of total household debt), according to Norway’s central bank. However, the way it has been mounting suggests that more households are becoming more vulnerable. Consumer credit debt grew by 15 percent in 2016 according to the financial website billigeforbrukslå

Apart from impacting the financial health of Norwegian citizens, the situation poses broader economic risks as well. The high interest rates on consumer debt may become tough for households to service. This is especially possible if their income drops or they lose it altogether. When people default on consumer debt they may be forced to sell assets to repay it. In the worst case, they may even need to sell their homes. As recent history shows, such a scenario can amplify a country’s economic downturn.

And, indeed, a growing number of Norwegians are struggling to pay the bills. A 2016 Consumer Research Institute (SIFO) report on economic vulnerability found that last year around 7% of Norwegian households had such trouble. That was up from 5.3% in 2011 and double the number for 2008 when it was at a low of 3.6%.

“These aren’t the highest numbers we’ve had, but the trend is upward… Currently, the economy of Norway is very good. Should it change, there is huge potential for crisis for very many. For example, from unemployment or due to higher interest rates,” said SIFO researcher Christian Poppe.

Economy Tough to Follow

Norway’s economy has gotten quite complicated, Poppe explains. Busy people have trouble keeping track of what’s going on to the degree that would be safest. If they’re not understanding the economic landscape and “are experiencing a significant decline in revenue and increased spending simultaneously” they end up very vulnerable, he notes.

Regulations to the Rescue

The upward trend in personal debt has the authorities seeking solutions that can boost the resiliency of heavily indebted Norwegians. Amongst the proposed FSA regulations is a cap on an individual’s overall loan load, including consumer loans and mortgage debt, at five times the gross annual income of the borrower. Norwegian and foreign banks operating in Norway will all need to abide by this rule.

Further, the regulator wants limitations on the marketing of credit cards and other high-interest loans to better protect consumers. The new rules will bar the most aggressive forms of marketing but won’t ban it altogether, as some consumer advocates had hoped.

Other measures are: a centralized debt register that lets banks assess an individual’s overall debts, and a mandatory requirement that lenders better inform borrowers of the size of their debt.

Solutions for Those Suffering Most

Meanwhile, unemployed Norwegians can turn to the Norwegian Labour and Welfare Administration (NAV) for guidance on recovering from a debt crunch.

Though not responsible for aiding clients to tackle excessive debts, NAV does provide essential information. The agency’s website says that Norwegian jobseekers can get the following at local NAV offices:

  • Help preparing an overview of one’s financial situation and setting up a realistic budget
  • Tips on reducing expenses
  • Help making agreements with lenders
  • Assistance writing an application for deferment of payment
  • Information about rights and obligations
  • Help on entering into a debt settlement agreement
  • Support to negotiate with creditors
  • Advice on contacting the Execution and Enforcement Commissioner

Photo by Alice Pasqual on Unsplash

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