High-income people default on their mortgage – E24

The high level of interest means that more and more “ordinary people” are defaulting on their mortgage. Debt collection companies fear this is just the beginning.

– We have not yet seen the impact of the high level of interest rates for a long time, says senior analyst Morten Trusty at debt collection company Intrum to E24.

He explains that a mortgage typically has to be in default in three installments before it goes into debt collection, and it takes time before interest rate increases show up in a private economy.

“We think this will destroy many private economies in the long run, because there is no sign of interest expenses falling in 2024,” says Trusty.

High income

So far this year, Intrum has had a 16 percent increase in mortgages going into debt collection compared to the same time last year.

There are also more than before the Corona pandemic in 2019.

These left behind a “new” client group for the debt collection giant.

These are people who are around 40 years old, have high income, very high debt and no history of default, according to Intrum.

– It's a clear trend that others are experiencing right now. These are often ordinary people with high levels of debt and high incomes, who haven't had payment problems in the past, Trusty says.

Larger loans

He points out that the proportion of those who now have a mortgage to collect, and who previously had serious payment problems, has fallen from 10-12 percent to 3-5 percent.

– It is more than half, says the chief analyst.

However, it is not just more loans, and people with no previous repayment problems who are now defaulting.

There are also larger loans.

– Reducing the debt ratio

Mortgage amounts collected at Intrum rose as much as 50 percent compared to May of last year, according to Intrum.

The senior analyst says this is a direct result of rising interest rates hitting those with the most debt and highest debt ratio first.

– Those with debt collection mortgages now often live in a more central location than before, and there are many who rolled over their debt ratio too much when interest rates were low, says Trusty.

He adds that the shift in defaults towards larger cities also makes sense given that house prices are more expensive there than in the region.

Confirms

The picture is the same at Credenor, the largest debt collection company in Norway.

There, the number of mortgage cases has increased by seven percent so far this year, compared to the same period last year.

– We are also seeing some increase in the volume of mortgages going into debt collection, says head of analysis Christopher Steen Hansen at Kredinor to E24.

He notes that mortgage debt collection also stands out when compared to the number of debt collection cases, which are down ten percent so far this year compared to before the coronavirus pandemic.

– Steen Hansen says the range of mortgage debt collections has recently been equal to or higher than it was just before the pandemic.

It will take longer

Kredinor monitors the financial situation of households through its own barometer, which now shows the limited liquidity situation.

– We expect the tightening situation to continue through the autumn, and to gradually improve, influenced, among other things, by expectations of a key interest rate cut, says Steen Hansen.

He adds that because of the backlog before defaults move into debt collections, it will take longer before mortgage collection volumes decline.

The supervisory authority warns

Norwegians have a lot of debt, and house prices are high.

These also remain the most important weaknesses in the Norwegian financial system, Finanstilsynet points out in a recent report.

The most important weaknesses in the Norwegian financial system remain high household debt and high residential and commercial property prices, says Director of Financial Supervision Per Matthijs Kongsrud.

The sharp increase in mortgage collections is currently an individual problem, not a societal problem, believes Tasti at Introm.

– If it is to become a mass problem, it is necessary for something to happen in the labor market, and for more people to shift from employed to unemployed as interest rates rise, he says.

More interest rate hikes

The authority previously warned of the interest burden on Norwegians.

Norges Bank has set its key interest rate in several rounds, and banks have followed suit by increasing mortgage interest rates.

This happened after the interest rate fell to zero percent for the first time during the pandemic.

Norwegians suffer from high debt compared to their income, according to the Norwegian Supervisory Authority. Meanwhile, the debt burden has decreased somewhat in the past two years.