Have you been thinking lately that “I’m doing pretty well, but everyone else is having a pretty rough time”? Then you are not alone. In the last two years, the interest rate has been raised 13 times, while price growth has been historically high. Wage growth has not kept pace with ever-increasing costs. The vast majority have found it noticeably tighter financially in line with a sharp increase in expenses. In Norway, we are particularly vulnerable, as more than 90 per cent of household mortgages have floating interest rates. From the time Norges Bank sets the interest rate, it normally takes six weeks before your bank raises the mortgage interest rate and your account becomes a little leaner. Figures from the Norwegian Financial Supervisory Authority show that the debt burden of Norwegian households is both historically high, and high compared to households in other countries. Several have increased their debt burden in recent years, during the period when interest rates were extremely low – which contributes to the fact that the interest burden has now increased significantly. Very few default Many households are exposed when interest rates rise sharply, and will struggle if you lose your job or house prices fall. Nevertheless, things are not as bad as most people think. Central bank governor Ida Wolden Bache has raised interest rates 13 times in two years. Photo: Terje Bendiksby / NTB Debt default, i.e. failure to pay installments and interest on the loan, has remained at a low level in Norway ever since the banking crisis in the 1990s. And although our interest burden is now at its highest level since that period, there is still not a particularly great danger that people will not be able to service their loans. One of the reasons is that we have had strong real income growth over the past 30 years, although the last 10 years have not been as good. That way, more of our income can be used to service the debt. Two per cent are struggling An analysis from Norges Bank that looks at how increased interest rates affect our ability to service debt shows that the vast majority of households can service their debt even if interest costs increase. The analysis is based on the fact that we can use our income, saved funds or that we can increase our loan up to 60 percent of the home’s value. The latter solution of course only applies to those who are now some way below the 60 per cent loan-to-value ratio. Next year, Norges Bank believes that we will have a mortgage interest rate of 5.7 per cent on average. It is far higher than we have been used to in recent years. We have not had mortgage interest rates this high since 2008 – 15 years ago. Nevertheless, the analysis from Norges Bank shows that less than 2 per cent of households may have payment problems at that interest rate level. This means that 98 percent do not have payment problems. We spend less money This does not mean that Norwegians pour as much money into the economy as before. For example, car sales have taken a hit, and grocery stores are experiencing more shortages of basic goods such as milk and butter – a sign of tighter economic times. Turnover in the retail trade, a good temperature gauge of people’s economy, has also fallen for three consecutive months. It is not surprising that we shop less when the interest burden goes through the roof. This is precisely the effect that Norges Bank will achieve when they raise the interest rate, they want us to get less money and spend less money in the economy. Spending the same amount on Christmas shopping Nevertheless, the goods trade organization Virke believes that we will spend at least as much money on Christmas shopping this year as last year. According to Virke leader Bent Apeland, “Norwegians are keen to take care of each other in the darkest times” and that “family holidays take on extra importance in uncertain times”. Thus, he believes that adult Norwegians will spend NOK 12,500 each on the Christmas celebration. I’m guessing that the people at the very bottom of the table put breadcrumbs down their throats when they hear that amount. So little is bad for the majority. That it is both difficult and painful to go from having good advice during the pandemic, to far worse advice now – that is obvious. But is it our fault? We have to distinguish between what feels painful and awkward, and for whom it really is a crisis. Because there is only a real crisis when the house goes up for forced sale and the only way to get butter on the table is by stealing from the shop. The question is whether the understanding of the crisis can be slightly adjusted. The vast majority will make it through the next two years as well – even if it’s going to be tough.
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The vast majority manage well – Expression
