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PROPERTY

When will mortgage rates in Sweden reach their peak?

Mortgage rates are on the rise in Sweden, as the Riksbank seeks to tame inflation, and its rate increases are passed on to borrowers. But how far will they go and how long before they start to retreat again?

Published: 19 August 2022 16:17 CEST
When will mortgage rates in Sweden reach their peak?
Apartments on Kungsholmen in Central Stockholm. Photo: Fredrik Persson/TT

What has the Riksbank done with rates so far? 

Sweden’s central bank at the start of June announced its biggest hike in rates for 22 years, a double increase of 50 points to 0.75 percent, which will stay in place until September 20th, when the rate is expected to rise again, hitting 1.36 percent by the end of the year, and then be hiked further, hitting 2 percent in the last six months of 2025. 

What has the rise in central bank rates done to mortgages in Sweden? 

The state-owned mortgage company on July 25th increased its various mortgage rates by between 0. and 0.45 percentage points, with the rate on a three month variable rate mortgage rising 45 points to 2.97 percent, and a two-year fixed-rate mortgage by 25 points to 4.11 percent. The 45 points increase to the variable rate mortgage means it will cost the average borrower 1,126 kronor more a month. 

At the end of July, Länsförsäkringar increased its rates on a three month variable loan by 0.50 percentage points to 3.54 percent, with its one year fixed-rate mortgage up 0.4 percentage points at 3.99 percent, and its five and ten year fixed rate mortgages unchanged at 4.24 percent and 4.7 percent respectively. 

When will interest rates peak? 

According to the state-run mortgage bank SBAB, the Riksbank will reduce its core interest rate after the summer back to two percent to reduce the negative impact of rate rises. 

SBAB’s variable rate mortgages are then expected to peak at 3.8 percent next summer, after which they will start to gradually decline. 

Should I get a variable or a fixed rate mortgage? 

According to SBAB, the time when a fixed rate mortgage could come with a lower rate than a variable rate mortgage is “definitely in the past”. 

“For fixed times of more than two years, it’s now expensive to protect yourself against significant rises in variable rates,” said the lender’s chief economist Robert Boije in a press release. “That window looks like it’s closed.” 

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MONEY

Why is Sweden one of the first countries to lower interest rates?

Sweden, along with Switzerland, is among the first countries to lower interest rates in Europe. Why is this?

Published: 10 May 2024 14:56 CEST
Why is Sweden one of the first countries to lower interest rates?

Sweden joined Switzerland, Czechia and Hungary in the small group of countries to lower their so-called policy rates earlier this week when the country’s central bank lowered the interest rate from 4 percent to 3.75.

There are natural explanations for this, according to financial experts.

“Sweden’s economy is more affected by interest rate hikes,” head economist at Nordea, Torbjörn Isaksson, told TT newswire.

Sweden’s GDP has shrunk four quarters in a row, putting Sweden at the bottom of the table when it comes to growth over the past year. Unemployment and bankruptcies have also gone up more than elsewhere.

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Isaksson believes that that’s the main reason Sweden is lowering its policy rate before other central banks, although he predicts the European central bank is only weeks away from lowering its key interest rate.

Although inflation in Sweden has dropped, the country still has higher inflation than both Denmark and Finland – the main reason for cutting the rate in Sweden is the fact that households here are so much more sensitive to high interest rates.

“A high level of household debt and short term loans has meant that high interest rates have hit harder here than elsewhere,” Isaksson said.

“That’s why there’s a greater need to take our foot off the brakes slightly.”

Having said that, Sweden’s economy still has a strong foundation.. Swedish business remains competitive, salaries are set “responsibly”, and the country has strong state finances, Isaksson said.

“Lowering interest rates while remaining hawkish is the best way to go,” SEB head economist Robert Bergqvist said.

“The central bank is showing that they’re taking this first step, they’re ready to take further steps, but they want to keep expectations low.”

Bergqvist described the Swedish economy as being out in the open sea, exposed to strong waves.

“We have strong state finances which work as an airbag, but I think the central bank is happy it can show that it’s reacting to what’s happening in the Swedish economy,” he said.

“It would almost be professional misconduct to not lower the interest rate based on what’s happening with inflation, so it’s hard for the central bank to avoid doing so.”

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