OSLO - The Norwegian government will ease its loan-to-value restriction on mortgage lending, the finance ministry said on Wednesday, loosening a policy that had constrained borrowing and led to a decline in the construction of new homes.

The revised rule set a maximum loan-to-value mortgage ratio of 90%, up from 85% previously, requiring borrowers to put up 10% equity when buying a home, down from 15% previously.

"The change will allow more people to enter the housing market," Finance Minister Trygve Slagsvold Vedum said in a statement.

First introduced in 2015, the mortgage regulation aims to protect the banking system and the wider economy as well as consumers by limiting the growth in borrowing and preventing the formation of a housing market bubble.

Norwegian households have the highest level of debt-to-disposable income among OECD countries, standing at 253% in 2022, the latest comparable data showed, up from around 130% at the turn of the century.

But borrowing has slowed in recent years as interest rates rose and the mortgage regulations restricted lenders, leading to calls from the construction industry and others for a softening of the rules.

"The current requirements appear to be somewhat stringent when compared with the benefits... This is why we are now adjusting the equity rule," Vedum said.

Norway's Financial Supervisory Authority had argued the loan-to-value rule should remain at 85%, while the central bank had said it could be eased to 90%.

(Reporting by Terje Solsvik, Editing by Louise Rasmussen and Kim Coghill)