HOUSEHOLD DEBT AND THE HOUSING MARKET

Transcription

1 217 FINANCIAL STABILITY REPORT: HOUSEHOLD DEBT AND THE HOUSING MARKET TORBJØRN HÆGELAND EXECUTIVE DIRECTOR FINANCIAL STABILITY DEPARTMENT 21 NOVEMBER 217

2 Key vulnerabilities in Norway 217 Financial Stability Report High household debt Change since the 216 Financial Stability Report High property prices Banks short-term foreign currency funding There are three vulnerability levels, of which red is the highest: 2

3 High household debt Percent Q1 217 Q2 25 Debt ratio (left-hand scale) 2 Debt service ratio (right-hand scale) Interest burden (right-hand scale) Sources: Statistics Norway and Norges Bank 3

4 High house price inflation House prices relative to disposable income. Index = Crises House prices/disp. income per capita House prices/disp. income Sources: Eiendomsverdi, Finn.no, Norwegian Association of Real Estate Agents (NEF), Real Estate Norway, Statistics Norway and Norges Bank 5 4

5 House purchases drive household credit Net change in debt for Norwegian households. In billions of NOK Households involved in property transactions Other households Sources: Ambita, Statistics Norway and Norges Bank 5

6 High household debt Debt to disposable income ratio for different groups. By age of main income earner. Percent Sources: Statistics Norway and Norges Bank 6

7 Debt exposure varies with stages of life Household categories in the analysis Percentage of participants in the analysis Percentage of total debt First-time buyers (age 2-34) Home movers (age 2-9) Secondary home owners (age 2-9) Younger (age 2-44) Older (age 45-64) Pensioners (age 65-9) Tenants (age 2-9) Other (age 2-9) Sources: Statistics Norway, Norwegian Mapping Authority and Norges Bank 7

8 Debt exposure varies with stages of life Household categories in the analysis Percentage of participants in the analysis Percentage of total debt First-time buyers (age 2-34) Home movers (age 2-9) Secondary home owners (age 2-9) Younger (age 2-44) Older (age 45-64) Pensioners (age 65-9) Tenants (age 2-9) Other (age 2-9) Sources: Statistics Norway, Norwegian Mapping Authority and Norges Bank 8

9 Debt exposure varies with the life cycle Household categories in the analysis Percentage of participants in the analysis Percentage of total debt First-time buyers (age 2-34) Home movers (age 2-9) Secondary home owners (age 2-9) Younger (age 2-44) Older (age 45-64) Pensioners (age 65-9) Tenants (age 2-9) Other (age 2-9) Sources: Statistics Norway, Norwegian Mapping Authority and Norges Bank 9

10 Household risk indicators Loan-to-value ratio (LTV: Net debt / house value) Critical level > 1 percent Debt-to-income (DTI: Total debt/gross income) Critical level > 5 Debt servicing capacity (Income debt service basic consumption) Critical level < 1 month 1

11 Loan-to-value ratio Net debt/house value. 1,2,3 Percent All First-time buyers Home movers Secondary home owners Younger Older Pensioners -2 1) Diamonds indicate the median, bars indicate the 25th 75th percentile and lines indicate the 5th 95th percentile. 2) Net debt is total debt excluding student loans and less bank deposits. 3) Tenants are excluded because they are not. Sources: Statistics Norway, Norwegian Mapping Authority and Norges Bank 11

12 Debt-to-income ratios Total debt/gross income. 1 Percent All First-time buyers Home movers Secondary home owners Younger Older Pensioners Tenants 1) Diamonds indicate the median, bars indicate the 25th 75th percentile and lines indicate the 5th 95th percentile. Sources: Norwegian Mapping Authority, Statistics Norway and Norges Bank 12

13 Debt-servicing capacity Margin in number of monthly incomes after interest and principal repayments and standard consumption expenditure All First-time buyers Home movers Secondary home owners Younger Older Pensioners Tenants 12 1) Diamonds indicate the median, bars indicate the 25th 75th percentile and lines indicate the 5th 95th percentile. 2) Applies to LTV ratios above 6 percent. Principal payments set at 2.5 percent of debt less student loans. Sources: Norwegian Mapping Authority, Statistics Norway, SIFO and Norges Bank 13

14 Credit risk assessment The risk that a household will not be able to service a loan Mortgage risks: when a household simultaneously exceeds the critical levels of the following three indicators: LTV > 1% DTI > 5 x gross income Debt servicing capacity < 1 month s income remaining after fixed expenses (interest payments and ordinary consumption) Consumer debt: Household debt with implicit interest rate > 2 x average interest rate 14

15 Overall credit risk is moderate Share of debt among households with a high loan-to-value ratio¹, high debt-to-income ratio², low debt servicing capacity³ and that have consumer debt. Percent All Firsttime buyers Home movers Secondary home owners 1) Net debt exceeding dwelling s market value. 2) Debt exceeding five times gross income. 3) Margin below one month s after-tax income. Sources: Norwegian Mapping Authority, Statistics Norway and Norges Bank Younger Older Pensioners Tenants 15

16 Overall credit risk is moderate Share of debt among households with high loan-to-value ratio¹, high debt-to-income ratio², low debt servicing capacity³ and that have consumer debt. Percent Consumer debt 21 Other debt 21 Consumer debt 215 Other debt All Firsttime buyers Home movers Secondary home owners Younger Older Pensioners Tenants 1) Net debt exceeding dwelling s market value. 2) Debt exceeding five times gross income. 3) Margin below one month s after-tax income. Sources: Norwegian Mapping Authority, Statistics Norway and Norges Bank 16

17 Risk of shifts in consumption High debt levels increase the risk of a deeper and longer recession Increased saving in the short term Less flexibility to adapt in the longer term Requirements: Breaches at least one criterion 17

18 Many households at risk of shifts in consumption Share of households with a high LTV ratio¹, high DTI ratio² or low servicing capacity³. Percent All Firsttime buyers House movers Secondary home owners Younger Older Pensioners Tenants 1) Net debt exceeding dwelling s market value. 2) Debt exceeding five times gross income. 3) Margin below one month s after-tax income. Sources: Norwegian Mapping Authority, Statistics Norway and Norges Bank 18

19 Summary Two key vulnerabilities: High levels of household debt and high property prices - closely interlinked Levels of risks vary between household groups. Risk is more pronounced among younger households. Overall credit risk is moderate, but many indebted households are at risk of shifts in consumption. A consumption shift may amplify a negative correction and increase bank losses. Macroprudential measures increase resilience and are helping to restrain the build-up of household vulnerabilities. 19

20 217 FINANCIAL STABILITY REPORT: HOUSEHOLD DEBT AND THE HOUSING MARKET TORBJØRN HÆGELAND EXECUTIVE DIRECTOR FINANCIAL STABILITY DEPARTMENT 21 NOVEMBER 217