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| Rate hikes start hurting |
| [30.08.2007, 11:52pm, Thu. GMT] |
Historically low interest rates in Norway have fueled the real estate market and prompted thousands to borrow heavily in recent years. A series of small rate hikes, the latest coming today, is finally leaving some borrowers feeling the pinch. Norway's central bank (Norges Bank) acted in line with analysts' expectations Wednesday and boosted its key lending rate a quarter percent, to 4.75 percent. "Consumer price inflation remains moderate, but there are prospects that inflation will gradually pick up," reported the bank in a prepared statement. "The interest rate is being raised so that inflation will not become too high."The rate hike is aimed at cooling off the hot Norwegian economy, which has boomed in line with oil prices and set off a nationwide shopping spree.
A new study released Wednesday notes that some borrowers now may be forced to curtail their trips to the shopping mall. Wednesday's rate hike, albeit small, is the 11th in the past two years, and it means that effective lending rates have more than doubled since 2005.
The study, conducted by research firm Visendi for Sparebank1, concludes that around 33 percent of borrowers now find that their new, higher mortgage payments will cut into their disposable income.
That's up from 16 percent earlier this year. Fully 26 percent of borrowers questioned this time around responded that their personal finances were tighter now than last spring.
That's exactly the point of higher rates, though, and it's important to note that lending rates remain much lower than they were in the early 1990s. Housing affordability as a percentage of total income remains higher, despite the rise in home prices.
Today's generation of borrowers may not remember that standard home mortgage rates have been as high as 17 percent. All home buyers should be able to tolerate interest rate hikes of several points given today's turbulent markets.
Norway's banks, hit by crisis at the end of the 1980s, now claim their loans are secure and that they're comfortable with their customers' ability to meet payments despite rising debt levels. |
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