Mortgage repayment during the Covid-19 outbreak

Regulations on the Norwegian mortgage markets have been in place for several years, including a requirement for minimum annual repayments by customers. The Covid-19 outbreak caused Norwegian lenders, including SpareBank 1 banks, to grant postponements on mortgage repayment schedules to customers who asked for this.



The outbreak of the corona pandemic came as a surprise to most Norwegians, as in many countries. There were immediate employment consequences of the meeting restrictions created by national governments or regional authorities from March 12, 2020. Restaurants, hotels and gyms, all without customers, in late March and April were forced to furlough many of their employees. One of the Norwegian government’s specific programmes to mitigate the economic effect of this furlough scheme on companies was to almost immediately cover the full cost of it. This was in contrast to the normal waiting period (16 days) during which such costs are covered by the companies themselves.

The registered unemployment rate in mid-April 2020 was the highest that Norway has recorded in modern times, with more than 10 percent unemployed and close to 5 percent partially employed, or underemployed. In contrast, the same registered unemployment rate was 2.3 percent as late as March 10, two days before the corona restrictions were first introduced. After the most severe restrictions ended, the unemployment rate recovered. But it remained higher at year-end 2020, than in the beginning of March. In general, it continues to be employees in the travel and services area who are on the outside of the labour market in Norway.


Unemployed and furloughed, registered, all Norway

Source: NAV statistics


Mortgage debt

In a country where having a mortgage debt is the norm, it became clear that there were people working in the affected services industries with current mortgage repayment obligations. More than 80 percent of Norwegian households carry mortgage debt, after choosing to buy rather than rent a home. After not having been responsible at all for the oncoming hardship of meeting their debt amortization schedule, many mortgage holders had a need to address this.

The Norwegian financial services regulator, Finanstilsynet, emphasized in early April 2020 that changing a repayment plan for otherwise credit worthy customers affected by the Covid-19 situation should not necessarily have adverse credit assessment implications. There should be no need to a downgrade a lender’s internal customer risk ratings and therefore it should not mean moving, all other things equal, customers from Stage 1 in IFRS 9 to Stage 2 (or 3). This view was supported by publicized views from the European Banking Authority (EBA). However, Norway did not institute a general moratorium for mortgage debt. The country’s banks generally offered repayment pauses – or postponements of repayment schedules - of normally up to six months for mortgage customers. This would take place upon customer request and with a reference to the extraordinary pandemic situation. The effect of this was that amounts not paid during the six month postponement period were added as an increment to all remaining scheduled repayments thereafter. Interest payments were not generally affected, with interest paid throughout the instalment pause period.

SpareBank 1 Boligkreditt’s portfolio

Norway’s current regulation for mortgage debt, in place since 2015, and reassessed by the Ministry of Finance periodically, state that residential mortgages with a loan to value (LTV) of 60 percent or more, must have a repayment schedule in place when the mortgage is granted. Repayments must be minimum 2.5 percent of the whole mortgage, annually. Customers with a mortgage below 60 percent loan to value, may not necessarily have a current repayment schedule, and could agree with their bank a different repayment profile. This could include lower than 2.5 percent annual repayments, or also a repayment free period. As Boligkreditt has many mortgages below 60 percent, there are usually a portion of outstanding drawn mortgage debt in a repayment free period, perhaps initially at the establishment of such a mortgage. Prior to the Covid-19 pandemic in early March 2020, mortgages with no current repayment schedule tallied up to approximately 17 percent of Boligkreditt’s overall drawn term debt mortgage portfolio.

SpareBank 1 banks accommodating their mortgage customers

SpareBank 1 Boligkreditt is a financing vehicle in the covered bonds space for its owner banks. While mortgages which Boligkreditt finances are transferred to its balance sheet and are its property, Boligkreditt lets its owner banks engage in all customer relations activities on its behalf. These owner banks quickly made application functions available to customers within their online banking sites this spring. As customers applied for the repayment postponements to their mortgages in the first phase of the pandemic, and this was approved by the bank, it was also automatically approved in Boligkreditt for the mortgages transferred to it.

The share of mortgages in Boligkreditt without a currently active monthly repayment schedule thus grew throughout the second quarter of 2020, and reached approximately 26 percent, from the starting and “normal” level of 17 percent. Approximately an additional 9 percent of the drawn term debt mortgage portfolio was therefore affected by the pandemic.

However, during the second half of 2020, the situation has reversed, and mortgage debt financed by Boligkreditt without scheduled monthly repayments, tied to lower LTV, is back almost to its starting level of around the pre-pandemic 17 percent.


Unemployment and GDP

The fact that Boligkreditt’s (and other) mortgage customers are again repaying their mortgages, is strongly correlated to the improved unemployment situation in Norway. However, it remains a little elevated at year-end 2020 due to the pandemic. It is also possible that the early January 2021 additional national and some regional Covid-19 restrictions will make it slightly higher. It remains the travel and services industry, and especially hotels and the restaurants, which are mostly affected. In contrast, the latest 2020 GDP estimate for mainland Norway (by Statistics Norway or SSB) is a contraction of 3 percent, which is significantly lower than thought earlier in the year. For 2021 and 2022, GDP is expected to grow 3.6 and 3.7 percent, respectively, while unemployment drops.

Eivind Hegelstad

Eivind Hegelstad is CFO / Investor Relations at SpareBank 1 Boligkreditt