HOUSE PRICES fell by between 50 and 80 per cent in Norway in a property crash that lasted from 1987 to 1993, leaving about 100,000 households in trouble. Few debtors wanted to sell their homes as values had fallen so far that borrowers didn’t want to crystallise losses.

In response to creditors aggressively trying to collect debts, the Norwegian government introduced debt settlement legislation in 1993 to deal with mortgages that homeowners could not afford while at the same time allowing them to stay in their family homes.

The legislation permitted the write-down of mortgages where what was a once secured part of the loan was no longer deemed to be secured as the property had fallen in value and this part of the debt had become unsecured.

The debt was then written down to a level that was slightly higher than the value of the property. So, for example, if a property was worth €300,000 and had fallen to €100,000, the loan on the house would be written down to €110,000 and the €190,000 would be written off over five years.

The legislation aimed to allow indebted borrowers to regain control of their financial affairs and to fulfil their debt obligations as much as they were able to afford.

Borrowers could make an application to an enforcement officer to decide over a period of four months where a voluntary settlement could be reached with creditors without having to go to court.

All creditors had to agree for a debtor to secure a voluntary deal.

If approved, they had to meet a payment plan for five years and then emerged free of all debts that are not effectively secured. If no agreement was reached, a debtor could look for a compulsory settlement imposed by a court.

Egil Rokhaug (left), a senior adviser to the Norwegian government, said between 2,500 and 3,000 mortgages were written down in the early 1990s and the average debt involved was €150,000.

“Voluntary settlements were not very successful in the first years – 50 per cent were voluntary; today it is 90 per cent,” he said. Some proposals were offensive to creditors – debtors’ houses were too big or expensive or the debtors were suggesting to keep a car or a boat or they were out of work and were not asking for work. Now we have 20 years of practice so it is known what creditors will accept or not accept. It wasn’t easy at first for creditors to understand that the state could make an act to take away their loans – there was resistance in the first years.”

About 50,000 people have availed of debt settlement deals since 1993, he said, though this represents less than 1 per cent of the population of Norway so voluntary settlements are not commonplace.