MNI BRIEF: Household Debt Costs Easing - Norges Bank
MNI (LONDON) - Norwegian households' interest rate burdens have risen markedly in recent years but the vast majority are able to meet debt costs and consumption expenditure by a sizeable margin and with real earnings rising and the policy rate set to be lowered it will become easier to service debt, Norges Bank's Financial Stability Report stated.
The rate hiking cycle led to a rise in average household interest burdens from around 4% of post-tax income at end 2021 to around 9% at the start of 2024, but this ratio, along with the debt sevice ratio, which includes principal payments, is on a declining path and only a small number of Norwegian households have had to cut consumption beyond normal levels, the FSR noted. The FSR said high household indebtedness is still a key vulnerability, but things have been improving with debt rising by less than income over the past two years.
Norges Bank cited commercial banks’ high real estate exposure as another vulnerability, with CRE firms hit by higher interest rate costs and lower property values. Norges Bank left the countercyclical capital buffer rate at 2.5% and it forecasts that it will keep the policy rate at 4.5% in December before gradually lowering it from Q1 2025.