Monday, October 28, 2013

Public Service To Public Employees

Dagens Næringsliv writes today about the Norwegian Public Service Pension Fund's (Statens pensjonskasse, SPK) mortgage offering for the members of the fund. There are around 500 000 members (10 % of Norwegian population) who all have access to a mortgage rate of 2,227 % which is 1-1,5 percentage points below what private banks are offering. Whole 83 % of the loans SPK has extended are refinanced mortgages originally from private banks, and SPK lending has grown by 47,2 % during the last year.

I'm sure there is a perfectly good explanation for this, but I can't avoid the feeling that something might be wrong here?

I googled a bit. When you search for "statens pensjonskasse", the top search result links directly to their mortgage page, not the start page (which comes as second). Funny? There it says that the maximum loan amount per member is around $290 000, and twice that if there are two members in a household. So there's a limit, which is good - but you can top that loan with a loan from a private bank. You only get loan worth 80 % of the market value, so you have to come up with the 20 % yourself - at least I hope so, but I wouldn't be too surprised if there are ways around this (the comments field is open for people who might know something about Husbanken?).

I'm not an expert in political life, but I would assume that this is a way to reward the public employees while keeping their base salary in check? What I don't fully get is
  • why the state is inflating the housing bubble through this measure while trying to restrict the bubble by raising the equity requirement in private bank loans from 10 % to 15 % and setting a higher risk-weighting for mortgages in private banks?
  • why the equity requirement (20 %) is higher than the one the state wants private banks to apply, leading to a higher hurdle for employees with more limited means?

If I was a public employee with 15 % of equity on my savings account, I would ask why I should go to a private bank and pay 3,7 % interest or more, while my colleague with 20 % of equity gets 2,227 %. But I'm not. That's why I just ask: Wouldn't it be better that the public employees would all get a raise and  go to the private market when they need a mortgage?

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