In a new report, Finanstilsynet states that a sharp rise in interest rates could trigger one significant fall in house prices. The interest rate increase has been announced by several banks and analysts, after a period of very low interest rates.
– I have a very large loan, so it will make a difference. Financially, I probably have to think a little differently, says Maren Nan Myrseth (25) to TV 2.
Myrseth bought his first home in the autumn of 2021 and has implemented measures to be prepared.
Take action
The 42 square meter apartment on Grünerløkka in Oslo was bought by Myrseth for just over four million. Her parents contributed as guarantors.
– I bought last autumn and knew that interest rates were on the rise. Now there have been a couple of interest rate hikes already. I have not noticed it very much yet, but I think I will notice it eventually, says Myrseth.
– GRÜNERLØKKA: Myrseth has bought an apartment on Grünerløkka in Oslo. Photo: Frode Sunde / TV 2
–
She is not worried that she will not be able to pay the loan, but says that she has taken measures for security.
– I have set aside a little every month to be prepared. You do not know what will happen, so I think it is wise to set aside a little to keep in mind.
If the interest rate increase becomes sharp, Finanstilsynet warns that house prices may fall significantly. This means that Myrseth and other homeowners may risk a decline in value.
– GROWTH: The number of first-time buyers increased in 2021. Photo: Aage Aune / TV 2
–
More first-time buyers
Figures from the Norwegian Real Estate Association show that more than 55,000 Norwegians bought their first home in 2021. This was the highest number of first-time buyers since 2008.
The largest growth is found in the municipalities around Oslo.
The average age has been stable in recent years, and is now 27.9 years.
– What we should take into account is that we can have persistently high inflation which necessitates a sharp rise in interest rates. It will affect both businesses and households, and especially those who are burdened with debt, says director of financial supervision Morten Baltzersen to TV 2.
– WARNING: Director of Finanstilsynet Morten Baltzersen warns that a sharp rise in interest rates could have major consequences for many homeowners. Photo: Gorm Kallestad / NTB
–
If the prediction occurs, it can have major consequences for those concerned.
– The proportion who have to spend more on servicing the loan will increase considerably, and some will also have problems being able to pay interest and installments.
If house prices fall a lot, you also risk losing your capital, Baltzersen believes.
– Some may find themselves in a situation where the debt, which does not automatically decrease, is significantly higher than the value of the home they have, Baltzersen says.
– Always a danger
25-year-old Maren Nan Myrseth is not particularly worried, as she has no plans to sell the home immediately.
– It is always a danger when buying a home that it can go down in value, but I have got the impression that in Oslo it will go up again eventually. A lot can happen in a few years, she says.
Carl O. Geving is CEO of the Norwegian Real Estate Association (NEF). He believes a fall in house prices is to be expected.
– A stool I do not think we should fear, but it is naive to believe that higher interest rates will not bite on house prices, Geving says to TV 2.
– EXPECT DECLINE: Carl O. Geving In NEF expects a decline in house prices, but no “worst case scenario” with a stool. Photo: Torstein Bøe / NTB
–
However, Geving agrees with Myrseth that the decline is likely to be temporary.
– Buying a home in a long-term perspective will probably be profitable, but there is a significant risk if you buy to sell.
More risk in housing investment
For many years, housing has been seen as a safe investment, with a stable increase in value.
– Should one now think differently with housing investment?
– It is clear that with falling interest rates for so many years, housing values increase very quickly. They eat up the borrowing costs quickly, and it has been very beneficial to sit with housing – at least in places with a very clear increase in house prices, says Geving.
– OWNER HOUSING: Figures from Statistics Norway show that three out of four Norwegian households own their own home. Photo: Frode Hoff
–
He points out that very many Norwegians have large parts of their wealth in housing, but does not think a decline in value will be an immediate danger to most people.
– In the long term, I would advise you to expect that you will benefit from it if you have property in an area that many people want to live in. In the short term, if you are going to sell in a few years, then there is risk.
The Consumer Economist’s Council
Although the value of the home does not necessarily fall in the long run, raising interest rates can make the economy tighter for many homeowners.
Storebrand’s savings and consumer economist Cecilie Tvetenstrand gives clear advice to those who are concerned about the increased costs.
– Use a mortgage calculator and see what the loan costs with four percent interest. Start depositing that amount monthly into a buffer account or pay extra down on the loan today. Then you get used to paying the amount that we may end up with, at the same time as you get used to adjusting consumption, says Tvetenstrand.
– PLANNING: Consumer economist at Storebrand Cecilie Tvetenstrand recommends already planning for a higher housing rent. Photo: Frode Sunde / TV 2
–
–
