Financial corporations, balance sheet, February 2007

Ordinary repayment loans, where the loan is paid to the borrower in connection with the purchase or building of a home, are facing increasing competition from credit lines secured on dwellings. This loan type is offered regardless of what the loan is used for. Such loans can be used to buy a car, holiday, furniture or other consumption, in addition to purchase, build or refinance a home.

Price growth results in higher lending value

With the sharp rise in house prices in recent years, many households have generated a large housing wealth. By taking up credit lines, borrowers can use some of this wealth rather than take up ordinary consumer loans or repayment loans, which tend to be more expensive than credit lines because they often have a fixed repayment plan, shorter repayment time and higher average rate of interest.

The rapid growth in credit lines secured on dwellings shows that this is a popular product. From January 2006 to January 2007, such loans increased by NOK 70.8 billion. Because they facilitate mortgage equity withdrawal, such loans have also been an important factor in the overall rise in household debt.

The rising debt level can make households more vulnerable to interest rate increases and potential drops in house prices. On the other hand, the security on the loans is good and they have flexible repayment plans.

In February, credit lines secured on dwellings accounted for 8.7 per cent of the stock of loans secured on dwellings, see figure. In light of good lending conditions and sharp lending growth for this type of loan, we expect that the use of such loans will increase further. According to the interest rate statistics at end-December 2006, the average interest rate for credit lines secured on dwellings was 4.1 per cent, compared with 4.4 per cent for repayment loans secured on dwellings. In comparison, the interest rate for other repayment loans was 4.8 per cent. This could be due to several factors, but it is likely that the interest rate difference will contribute to the sharp rise in credit lines secured on dwellings.

Since we have no information on loss provisions for credit lines secured on dwellings, all loan figures are gross loans, i.e. loans before loss provisions. Total loss provisions on loans to households are NOK 2 billion.

Credit lines

Credit lines secured on dwellings are normally given within 60-80 per cent of the mortgage lending value. It is up to the borrower how to use the loan and what the loan is used for. Interest is paid on the amount drawn, not the amount borrowed.