A variety of factors including strong parent banks and high quality collateral mean Norwegian covered bonds are well placed to withstand a potential downturn in the housing market in Oslo, where prices have trebled in the past 15 years and rose an “unsustainable” 22% in 2016, according to Moody’s.

Last year’s pace of growth is more than double the 10% average for the whole of Norway and the rating agency said today (Monday) that a correction in Oslo after such a rapid increase is “possible and perhaps likely” over time. It noted that while some recent demographic trends and interest rate levels since 2009 have underpinned house price growth, the latter has outpaced growth in disposable income.

“High levels of household debt in Norway mean home owners are more vulnerable in the event of interest rate rises, while lending growth and demographics could also have negative effects on the country’s housing market,” said Tomas Rodriguez-Vigil, an analyst at Moody’s.

Deeming Oslo’s house price growth unsustainable in the medium term, Moody’s said whether a correction would come as a gradual moderation of increases or a more dramatic downward shock could depend largely on external factors that might push up interest rates, or on further oil price shocks.

Covered bonds would nevertheless be well placed to withstand a hypothetical Oslo housing market downturn, according to the rating agency.

“Norwegian covered bonds benefit from strong banks supporting issuers and high quality cover pool collateral that has relatively low loan-to-value ratios and is not disproportionately exposed to Oslo, on average,” said Moody’s.

“In addition, covered bonds will be supported by the measures put in place by Norwegian authorities and banks to prevent a deterioration in the credit quality of residential mortgage loans,” it said, noting measures such as a loan-to-value (LTV) limit of 60% for mortgages taken out to buy secondary homes in Oslo.