The residential mortgage lending survey 2019 shows a continued increase in the debt-to-income (DTI) and loan-to-value (LTV) ratios of borrowers who take out new instalment loans. Many borrowers have high DTI and LTV ratios, and there was an increase from 2018 to 2019 in the proportion of new instalment loans deviating from the requirements of the residential mortgage lending regulations.
High and increasing DTI ratio
This year’s residential mortgage lending survey shows that the debt-to income ratio (total debt as a percentage of gross annual income) of borrowers who took out new instalment loans secured on residential property, was 342 per cent. This is 8 percentage points higher than in 2018.
The proportion of new instalment loans to borrowers with a DTI ratio higher than five times annual income declined markedly from 2016 to 2017, but has thereafter risen somewhat. Parallel to this, there has been a clear accumulation of loans close to the maximum permitted DTI ratio since the requirement was laid down in regulations in 2017. The proportion of new instalment loans to borrowers with a deb-to-income ratio above 400 per cent increased to 45 per cent in this year's survey, from 41 per cent in 2018.
Increasing LTV ratio
The total LTV ratio, i.e. residential mortgages in per cent of the property’s appraised value including additional collateral, was 65 per cent for new instalment loans in this year's survey. This is slightly higher than in 2017 and 2018. The proportion of new instalment loans with an LTV ratio above 85 per cent declined from 9 per cent in 2015 to 3 per cent in 2017, but has thereafter increased to 5 per cent in 2019. Parallel to this, there has been a rise in the proportion of new loans with an LTV ratio close to the maximum limit in the regulations.
Debt servicing capacity
In this year's survey, 3 per cent of new instalment loans were granted to borrowers with an inadequate debt servicing capacity, up from 2 per cent in 2018. For the group of borrowers below age 25, this proportion was 8 per cent, an increase of 2 percentage points from 2018. The age group 65 years and older had the second highest proportion of loans to borrowers with inadequate debt servicing capacity, rising from 4 to 7 per cent.
Higher number of vulnerable borrowers
Many borrowers have both a high DTI ratio and a high LTV ratio. 23 per cent of total new instalment loans were taken out by borrowers with an LTV ratio above 75 per cent and a DTI ratio above 400 per cent.
Relative to total debt, 12 per cent of new instalment loans in this year's survey fell short of one or more of the requirements of the residential mortgage lending regulations. Compared with last year's survey, there is a slight increase in new instalment loans falling short of the DTI ratio, debt servicing capacity and LTV ratio requirements, respectively, while the proportion of instalment loans with an LTV ratio above 60 per cent and an agreed interest-only period has been reduced. 24 per cent of total loans in the survey failing to meet one or more of the requirements of the residential mortgage lending regulations were granted to first-time homebuyers.
First-time homebuyers and younger borrowers have the highest DTI ratio
First-time homebuyers and borrowers in the younger age groups have the highest DTI and LTV ratios. In this year's survey, borrowers below age 25 have a total DTI ratio of 387 per cent and an LTV ratio of 76 per cent. The DTI ratio for first-time homebuyers was 386 per cent, while the total DTI ratio was 65 per cent. Nine out of ten first-time homebuyers in the survey were under the age of 35.
First-time homebuyers accounted for 9 per cent of total new instalment loans in this year's survey, but accounted for 24 per cent of the volume of loans failing to meet one or more of the requirements of the residential mortgage lending regulations.
Lines of credit
In this year’s survey, borrowers’ total DTI ratio and LTV ratio for new lines of credit were at approximately the same level as in 2018. The proportion of new lines of credit to borrowers with a DTI ratio exceeding four times gross annual income has increased in recent years. Compared with last year's survey, there is a moderate increase in new lines of credit failing to meet the debt servicing capacity requirement, while the proportion of new lines of credit that are non-compliant with the DTI ratio and the LTV ratio requirement (60 per cent for lines of credit) has been slightly reduced.
About the residential mortgage lending survey
Finanstilsynet’s residential mortgage lending survey is carried out each year and includes a selection of new loans secured on residential property. In the autumn 2019 survey, 30 of the largest (Norwegian and foreign) banks reported data on close to 8 000 new instalment loans and 4 000 new lines of credit secured on residential property granted after 1 August 2019.
Debt servicing capacity: Estimated ability to service the loan and cover normal living expenses after an interest rate increase of 5 percentage points.
Lines of credit: Interest-only loans where it is up to the borrower to decide how much to draw within a set limit.