Even though their importance has been reduced in recent years, mortgage companies still provide most residential mortgages. With the predominance of mortgage companies, fixed-rate mortgages have been a tradition in Denmark and Sweden. This has not been the case for Norway. Mortgages from the State Housing Bank were primarily adjustable-rate loans. After credit market liberalisation, adjustable-rate mortgages were also offered by banks. The supply of fixed-rate mortgages was limited. Fixed-rate loans are less common in Norway than in the other Nordic countries. From the 1980s to the 1990s, the Norwegian economy moved from high to low inflation with, until recently, falling nominal long-term interest rates. Borrowers with fixed-rate mortgages fared poorly in this period, and even more poorly than maturity or mortgage insurance premiums alone would imply. But with a clear monetary policy objective to keep inflation low and stable – and with an independent central bank tasked with achieving this objective – the result would be different. The high inflation expectations that were built into long-term interest rates no longer exist and a further marked fall does not seem likely, nor for that matter does any substantial inflation-driven increase in long-term rates. Purchasing a home is a long-term investment. A fixed-rate mortgage reduces borrowers’ uncertainty about expenses over the life of the loan. Longer-term financing in banks Banks play an important role in the economy. Their task is to convert short-term deposits into long-term loans. In times of crisis, fulfilment of this task is put to the test.

Svein Gjedrem: Housing finance in Norway Speech by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), to the Norwegian Covered Bond Forum, Oslo, 27 January 2010. The text below may differ slightly from the actual presentation. This lecture does not contain assessments of the economic situation or current interest rate setting. *  *  *  From state to private housing finance After the Second World War, the credit market in Norway was regulated. Credit demand was high. The Norwegian state endeavoured to steer credit flows towards priority sectors and the state banks therefore played an important role as credit intermediaries. There were considerable housing shortages after the war. For some population groups, living conditions were poor. In1946, the Norwegian State Housing Bank was established to provide credit for new residential construction. This bank and Statens Landbruksbank (the state agricultural bank) dominated housing finance for new house purchases up to the 1980s. State bank mortgage rates were initially set based on political objectives, but were over the years gradually revised up and adjusted to market rates. With the gradual deregulation of the credit market in the 1980s, state lending institutions assumed a lesser role in housing finance and the private market took over. Sales of existing homes increased. In 1992 private banks provided the majority of residential mortgages. Their share of housing finance was also high compared with other Nordic countries. In Denmark and Sweden, mortgage institutions were the primary source of residential mortgages.