“Most people have to make some tough choices”warned Nordea Norge CEO Snorre Storset in Nettavisen this summer.
And it has become tougher, with persistently high electricity prices, a clear increase in interest rates and generally higher living costs. Nordea is therefore noticing a large increase among customers who want to have freedom of installments in order to make the finances stretch.
– During the autumn, we experienced a gradual increase in concerned customers contacting us. The number of applicants for exemption from installments has doubled since last spring, and now in January compared to January 2022, says Randi Marjamaa, personal market director at Nordea Norge, to Nettavisen.
Tripling in Norwegians who struggle with bills every month: – Very dramatic figures
Low leverage
There are relatively clear rules for which customers are granted a grace period, although the banks also have a deviation quota. There is room for individual assessments.
– But the starting point is a loan-to-value ratio below 60 per cent, and that this is not a permanent solution, but for customers with decent finances. Freedom of payment is only granted in periods of need for extra liquidity and up to six months, says Marjamaa.
In other words: the loan should not amount to more than 60 per cent of the home’s value in order for you to get a repayment deferment. But the banks have tested the ability to pay after the provisions of the lending regulationswhy such a large influx?
– Yes, but when customers experience such large fluctuations in costs, they may not have the liquidity for it. In our loan processing, we assume normal costs for a household. The vast majority manage to handle these fluctuations, but things happen in life, such as a divorce or something else urgent, Marjamaa counters.
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New types of customers
– Do you notice any change in who is now asking for exemption from installments?
– Yes, it is a little different. We see a greater degree of new categories of customers who are now applying, whereas before there were tendencies towards regulars. The borrowers got through the uncertainty over Christmas and only paid half their tax in December.
– Now everyday life is back, and in the future we expect an increase in the price of food and some increase in interest rates.
– What weighs the most on customers this winter?
– A great many of the inquiries go to electricity. Customers now have to get used to a generally higher level that they have not been used to. This particularly applies to electricity customers in the north, we saw a case where the electricity bill had increased from NOK 700 a month to almost NOK 5,000.
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Most people can handle it
– Do you fear a wave of defaults ahead?
– No, we don’t do that. All in all, most people do well. There has been a big change in the economy and a big shift from the pandemic, but I am not worried, replies the personal market director.
When have you as a borrower defaulted on a loan? The short answer is that you have not paid the installments as agreed, but there are differences in degree. The key word is “significant”, how large are the missed installments and the number of days past the payment deadline.
– If you are significantly behind with a number of installment payments, this is considered significant. We had a case where the person in question owed NOK 53,700 in installments on a loan, and that was defined as significant. But this amount also depends on the size of the loan, says Marjamaa.
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The earlier, the better
– What is the appeal to the customers?
– We receive many more inquiries and stress the customers to contact us if they are worried. The earlier they ask for help, the more we are in a position to help them. There are many steps we can take, such as extending the term of the loan and looking at the finances together.
– For many customers, it is reassuring, so the call is to get in touch when they are worried.
Marjamaa says that in 70-80 per cent of the cases, it is uncertainty about the expenses that causes concern. But the income side can also become a problem in industries such as construction and the furniture industry. The positives are still very low unemployment and a still attractive labor market.
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Backlog
The banks raise interest rates with six weeks’ notice to customers, and Norges Bank will probably raise the key interest rate further in March. There may be another interest rate hike in June, we have not yet seen the full effects of the interest rate hikes.
– But it is approaching the peak, and we believe that the electricity price will eventually calm down. Then it has been announced that food prices will rise in February, so it is a bit tougher for many, says Marjamaa.
– Has Nordea started to tighten lending practices as a result of more difficult times?
– No, we have not tightened up. We changed a little as a result of the changes in the lending regulations. The changes in the lending regulations in Norway are now such that we stress test the customers to withstand 7 percent interest and an interest rate increase of 3 percentage points. It’s a bit more like what they do in Finland. The Finns have always had a stress test that customers must tolerate an interest rate of 6 per cent, Marjamaa replies.
Last year, Norwegian borrowers had to endure an interest rate increase of up to 5 percentage points, this requirement was relaxed somewhat before the New Year.
Good activity
House prices reached a temporary peak in September, but have since fallen for four months in a row. The fall in December was still less than expectedt. Marjamaa assures that they do not demand new rates from the borrowers. Nordea feels that there is still quite good activity in the housing market.
– There is a fair interest in obtaining a financing certificate, there is always an underlying need to change homes, says Marjamaa about the level of activity.
