Home Equity-Based Refinancing and Household Financial Difficulties: The Case of Norway

42 Pages Posted: 14 Nov 2014 Last revised: 22 Jun 2015

See all articles by Synne Almaas

Synne Almaas

Norwegian University of Science and Technology (NTNU)

Line Bystrøm

Ministry of Local Government and Modernisation

Fredrik Carlsen

Norwegian University of Science and Technology (NTNU) - Faculty of Social Sciences and Technology Management

Xunhua Su

Norwegian School of Economics (NHH)

Date Written: June 20, 2015

Abstract

Housing prices in Norway and the Norwegian household-debt-to-disposable-income ratio have reached unprecedentedly high levels in recent years, raising debates about whether there is a serious housing bubble. Contributing to the debates, we study home equity-based refinancing in Norway and have two main findings. First, along with soaring housing prices, homeowners significantly withdraw their home equity. This cash-out accounts for at least one-third of outstanding household mortgages and hence substantially contributed to the high debt-to-income ratio. Second, households with large cash-out-to-income ratios are more likely to have financial difficulties. As cash-out refinancing is blamed to be one of the key drivers of the subprime crisis in the United States, our findings call for more attention to home equity-based refinancing in the Norwegian housing market.

Keywords: Household debt, cash-out, refinancing, household leverage

Suggested Citation

Almaas, Synne and Bystrøm, Line and Carlsen, Fredrik and Su, Xunhua, Home Equity-Based Refinancing and Household Financial Difficulties: The Case of Norway (June 20, 2015). Available at SSRN: https://ssrn.com/abstract=2523025 or http://dx.doi.org/10.2139/ssrn.2523025

Synne Almaas

Norwegian University of Science and Technology (NTNU) ( email )

Høgskoleringen
Trondheim NO-7491, 7491
Norway

Line Bystrøm

Ministry of Local Government and Modernisation ( email )

Akersgata 59
(Postboks 8112 Dep)
Oslo, 0032
Norway

Fredrik Carlsen

Norwegian University of Science and Technology (NTNU) - Faculty of Social Sciences and Technology Management ( email )

NO-7491 Trondheim
Norway
+47 735 91931 (Phone)

Xunhua Su (Contact Author)

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway

HOME PAGE: http://sites.google.com/site/xunhuasu/

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