Interest, Mortgages | Norges Bank expects a big jump in housing interest rates: You can save many thousands on fixed-rate measures
If Norges Bank is correct in its interest rate forecasts, you should tie the interest rate now. But economics expert Hallgeir Kvadsheim is unsure whether the savings will be so great.
At its interest rate meeting last week, Norges Bank signaled up to seven interest rate increases up to 2024. The key interest rate could be 1.75 per cent in three years’ time, which over time is calculated as and almost normal interest rates. There are four interest rate increases within one year.
A key question is whether Norges Bank is correct in its predictions. The fixed income market is not as skewed.
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Predictability
If Norges Bank’s interest rate forecasts turn out to be correct, the average mortgage rate today of 1.75 per cent can almost double over three years to 3.16 per cent by the end of 2024. At the same time, banks offering Danske Bank now fixed interest rates down to 2.24 per cent a year with a five-year fixed term.
This means that if Norges Bank’s estimates are made, in 2024 you will save up to NOK 27,600 a year with a fixed interest rate and a mortgage of NOK 3 million, compared with a floating interest rate. Even with slightly poorer fixed interest rate offers, we are thus talking about almost two thousand kronor a month in savings.
Finance expert Hallgeir Kvadsheim warns, however, against believing that you will necessarily save so much money, and points out that Norges Bank has often missed quite sharply with its interest rate forecasts.
– In previous periods, I have been more right than Norges Bank. Based on pure profitability, it has been best to have and float the last five years.
– But in the spring of 2020, interest rates on ten-year fixed-rate loans were very low, below 2 per cent. Then I could make some very good dealers, but it is not a given that it pays off in the future. Then we are back to the argument about predictability, says economics expert Hallgeir Kvadsheim to Nettavisen Økonomi.
– I do not have my own macroeconomic view, but if we go back 10-15 years, Icke has presumably hit better than Norges Bank. But most households will tolerate such an increase, says Kvadsheim about the possible increase.
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Abroad decides
The interest rate on fixed-rate loans is indirectly controlled by the long-term interest rates on Norwegian government bonds. Currently, the ten-year Norwegian government interest rate is approx. 1.5 percent. This is lower than what the forecast from Norges Bank indicates.
– It is foreign interest rates that determine most of the pricing of longer Norwegian government bonds. The market for 10-year government bonds generally does not care much about Norges Bank, says head of research for credit, Pål Ringholm, in SpareBank 1 Markets.
Today, before the announced interest rate increases from the banks, the average interest rate is 1.75 per cent for loans with floating tenants. These are mortgages where interest rates vary in line with market interest rates and just over nine out of ten Norwegian borrowers have.
Just over 2 percent
If we look at the best fixed rate offers in Finansportalen.no, For a larger loan in Danske Bank, you can rent for the next ten years at an effective interest rate of 2.41 per cent. You get this interest if the loan amounts to 80 percent of the home’s estimated value, and then you know that for the next ten years you will pay 8,860 kroner a month on the mortgage.
Danske Bank is also the lowest at 2.28 per cent for tenancy for five years. Here, there are a number of banks that offer and effective interest rates around 2.3-2.4 percent. This can be a typical mortgage rate already at the turn of the year.
When you first tie rent, you should choose long bond time.
– I think so, three years go by fast. The interest rate path is more uncertain five to ten years ahead than for zero to three years ahead. If you want predictability, you should tie the interest rate for more than three years. Some bankers also charge such a high establishment fee on fixed-rate loans and possibly when you switch back, that it eats up part of the gain, says Kvadsheim.
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As tall
One solution could be to rent parts on the loan, for example half. Kvadsheim believes that this speaks in favor of an even longer lock-in period.
– Yes, a minimum of five years, because there are bankers who demand an equally high fee even if you only bind half. They are also paying a term fee on both loans, warns the financial expert.
There are very few as a binder in Norway. The typical fixed interest rate share in the banks is around 5 per cent, as in Nordea Norway. Kvadsheim points out that, unlike abroad, fixed-rate loans in Norway are associated with speculation.
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Rart
– It may seem strange, as a fixed-rate loan gives you predictability during the agreement period. Abroad, on the other hand, they associate floating interest rates with something speculative, because floating mortgage loans can jump both up and down, as they have done in Norway for the past three years.
– If you tie the interest rate to a higher interest rate than the current floating interest rate, the forward amount will grow. On the other hand, people seem to tie the interest rate when the fixed interest rate is at times lower than the floating interest rate. Then they feel that they save money from day 1, says Kvadsheim about the paradox.
But historically it is stupid to tie the interest rate when the interest rate level is on the way down, because then the floating mortgage rates will also fall. In reality, this is what has happened since the late 80s with some exceptions, such as during the financial crisis in 2008 and 2009.
Does not earn extra
A recurring question is whether banking services are more on fixed-rate loans than loans with floating interest rates and thus have a separate interest in such loans. No, Kvadsheim thinks.
– Holberg Fondene has come to the conclusion that the banks earn less on fixed-rate loans, the margin is higher for loans with floating interest rates. For many banks, it is thus a myth that they earn more on fixed-rate loans, it is rather the opposite.
– But it may seem as if Storebrand Bank and Danske Bank are using fixed-rate loans as part of tying up the entire customer commitment for a longer period of time. If you have tied the interest rate for ten years, it is much more difficult to move the rest of the products to another bank, such as savings and funds, he says.
Solid increase
The head of the retail market at Danske Bank, Aleksander Dahl, says that in the last couple of years the bank has had a solid increase in Norwegians who want to become customers with them. When it comes to fixed interest rates, this is a segment the bank may have invested more in than its competitors. As a consequence, they have good conditions for a long time.
– This has meant that a somewhat larger percentage of our customers choose fixed loans on all or part of their loan compared with other banks, Dahl says.