Slightly lower margins on residential mortgage lending
- Survey of Bank Lending
Residential mortgage demand fell slightly in 2021 Q1, while credit demand from non-financial enterprises was approximately unchanged. Overall, credit standards and loan conditions were unchanged in both segments, and banks expect no change ahead. Banks report higher funding costs for lending to households and slightly stronger competition for corporate loans. Margins on residential mortgage loans fell a little in Q1. Lending margins in the corporate segment fell slightly.
Banks report that the share of corporate customers with debt-servicing problems was approximately unchanged between 2020 Q4 and 2021 Q1. Most of the banks report that the unwinding of the government cash support scheme for enterprises to some extent represents a potential risk of bank losses on loans to vulnerable industries ahead.
Banks report that residential mortgage demand fell slightly in 2021 Q1 (Chart 1). Demand for first-home mortgages also fell, though less than overall residential mortgage demand. Demand for fixed-rate mortgages increased marginally, although fixed-rate mortgages still account for a small share of residential mortgages. Banks expect residential mortgage demand to remain approximately unchanged ahead.
Overall, credit standards and loan conditions for households were unchanged through Q1 (Chart 1). The use of interest-free periods for households fell marginally, and some banks report that the use of interest-free periods has returned to pre-pandemic levels. Banks assume that credit standards will remain unchanged ahead.
Banks’ margins on existing residential mortgage loans edged down in 2020 Q4 (Chart 1) and continued to fall a little in 2021 Q1, reflecting a slight increase in funding costs and broadly unchanged lending rates. No changes are expected ahead.
Since the outbreak of the Covid-19 pandemic, there have been few signs that banks’ existing residential mortgage customers have increased their mortgage repayments compared with the previous year (Chart 2). Only four out of ten banks report that a small group of customers have increased their mortgage repayments.
Banks report that overall credit demand from non-financial enterprises was unchanged in 2021 Q1 (Chart 3). Credit line utilisation and demand for commercial real estate (CRE) loans fell marginally, while demand for fixed-rate loans was unchanged. Banks expect approximately unchanged credit demand ahead.
Nor was there any change in overall credit standards or loan conditions for enterprises in Q1, and banks expect no change ahead (Chart 3).
Banks’ margins on new loans to non-financial enterprises fell a little in Q1 (Chart 3). Banks report a small increase in competition, slightly lower funding costs and unchanged lending rates. No changes are expected ahead.
Banks report that the share of corporate customers with debt-servicing problems was approximately unchanged between 2020 Q4 and 2021 Q1. Two banks report that payment problems are at a normal level. One bank adds that some borrowers may experience problems servicing government-guaranteed loans and that these will then apply for interest-free periods.
A majority of the banks report that the unwinding of government cash support schemes introduced in response to the Covid-19 pandemic represents a potential risk of losses to some extent (Chart 4). One of these banks emphasises that the cash support scheme is crucial for some businesses that have been severely affected by restrictions and that there is a risk that the existing scheme is not sufficient to enable these businesses to survive the pandemic. A minority of the banks report that the start of the payment of deferred taxes and duties and the unwinding of the government loan guarantee scheme to some extent represents a potential risk of losses. One of the banks responding that the unwinding of all the support schemes represents little risk of losses adds that the schemes will likely continue as long as the pandemic and business closures indicate a need for support. Half of the banks report that lending to the hotel segment to some extent represents a risk of losses on CRE loans. Three banks report that the retail trade segment represents a risk of losses to some extent. For other CRE segments, banks generally report that the risk of losses is low.
Six out of ten banks report that the risk of a price fall in the CRE market has increased somewhat after one year of pandemic. Neither banks’ margins on CRE lending, equity ratios required by banks for loans collateralised by commercial property, nor banks’ debt-servicing capacity requirements for CRE companies appear to have changed substantially. Competition from the bond market is unchanged.
 The survey was conducted in the period 22 March - 7 April 2021.
In its work on monitoring financial stability in Norway, Norges Bank uses extensive statistics on developments in credit and financial markets. In order to expand the information base, Norges Bank conducts a quarterly survey of bank lending. The survey provides information on changes in the demand for and supply of credit and on changes in banks’ loan terms and conditions. Objective of the Bank Lending Survey