Saturday, March 23, 2013

Of Banks And Politicians

To show you that I'm not politically motivated, I will now pick on the current Norwegian government led by Labor (Arbeiderpartiet). Oh, looking at the news it's impossible to miss the fact that the general election is approaching!

At least since 2011 the Prime Minister, Jens Stoltenberg, and the Finance Minister Sigbjørn Johnsen, have not been hiding (here and here) the fact they are very concerned about a possibility for a housing bubble. And even now they don't deny it, even though they might try to downplay it somewhat (you don't win an election by telling people living in a bubble that they are living in a bubble?). Anyway, the government has been working hard to make mortgages less profitable for banks, and legislation to achieve this is already on its way. Basically they are telling the banks that "if it's a bubble, you need to save yourselves, the government can't foot the bill". Well, how does an investor like a bank respond to increased risk? They ask more compensation for bearing the risk, in this case through higher interest rates on the mortgages.

How does the government respond in an election year when many banks tell their clients that they will take mortgage rates up 0,3 %-points initially (and that more may follow) and that it is due to demands from the government? The government gets furious! And the Finance Minister says banks are doing so good that there's no need to increase the mortage rates.

Do not expect any responsible behavior from the politicians before autumn 2013! And like in this case, if they have behaved responsibly earlier, expect them to deny it at least three times.

By the way, this news spells a lot of "bad blood" between the banks that compete for mortgage customers in Norway. Skandiabanken, which is a subsidiary bank of a Swedish insurance company, is reporting that during the last two weeks they have received a huge flow of mortgage clients from the banks (for example the giants DnB and Nordea) who warned about increases in their mortgage rates by 0,3-0,35 %-points. Skandiabanken tells that they are not thinking about increasing the rates, hinting that the doors are open for new customers.

This might get dirty?


  1. There can be no such thing as a housing bubble in an election year, it's a scientific fact.
    It's not like cheap money has ever created inflated demand in the past, right? ;)

  2. Thank you for blogging about this topic. We have moved to Norway for almost 3 years ago and would like to have a "place of our own", but as the things are now (crazy) we are not going to buy. Peaople are crazy when it comes to property market, it is easy to see when we talk to our colleagues and everybody is buying or switching to a bigger place. Everyone feels that "it will never fall down, but it may falt out", or "it will not fall, because we have oil". Now it has chilled down a bit in the media and SSB is correcting their prognosis for the next years, but I reckon it is still far from the truth.

    Of course the government will not let it fall during election year, they will pump as much money as possible into Startlån...

    1. I share your frustration, Żaklina! I wrote yesterday about SSB's prognoses, had noticed the same as you had done after each publication from them.

      This "startlån" is just an amazing tool. The government helping people to afford a home of their own might work when the prices are reasonable to low, but when the prices are like they are today it all goes very wrong indeed! With current prices probably half of the first-time buyers have "difficulties" with financing, so let's splash out cheap loans to these poor babies? If this turns out to be a bubble, these people will be in the deepest trouble.

      It's a disaster in waiting - all thanks to the "cult of homeownership".