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EXPLAINED: What rising interest rates in Norway mean for you

EXPLAINED: What rising interest rates in Norway mean for you
Rising interest rates won't just affect property prices. Photo by Eirik Skarstein on Unsplash
Loan and mortgage repayments in Norway are set to go up due to rising interest rates. Here’s what the increased rates mean for you and why it isn't all bad news. 

Norway’s central bank, Norges Bank, has decided to raise the key interest rate from zero to 0.25 percent as part of its strategy to bring interest rates up to 1.75 percent by 2024. 

“The normalisation of the economy indicates that it is now right to start a gradual normalisation of the key interest rate,” Øystein Olsen, governor of Norges Bank, said in a statement

On the surface, this might come as a blow to consumers, especially those who have taken out loans and mortgages in the past two years, as interest rates have been fixed to zero.

The hike means that mortgage repayments will become more expensive for the 109,000 first-time buyers in Norway who have never experienced rising interest rates before. 

Another knock-on of an increase in interest rates that will affect homeowners and house hunters is the slowing down of rising house prices and weaker purchasing power. 

“All in all, purchasing power will weaken. This, in turn, will lead to a more moderate development in the housing market and a weaker price development,” Carl Geving, CEO of the Norwegian Real Estate Association, explained to public broadcaster NRK

EXPLAINED: What do Norway’s rising house prices mean for you?

In addition, while billpayers may not notice the extra 0.25 percent interest initially, interest rates are expected to steadily increase for the foreseeable future. That is something consumers should always prepare for, Ola Honningdal Grytten, a professor of economic history at the Norwegian School of Economics, explained to NRK

“One should always expect that interest rates may rise. For example, if you take out a loan, you should think that you must have room for the interest rate to rise by 3-4 percentage points, compared with when the loan was taken out. However, not everyone does that,” he explained to NRK. 

In fact, Grytten thinks the rises should actually be met as good news. 

“As a nation, we should be happy that interest rates are on the rise,” he said. 

This is because interest rates rising from historically low levels is a sign that the economy is on the mend and beginning to bounce back from the Covid-19 pandemic. 

Norges Bank argues that the higher rate has been brought in because it is satisfied that the Norwegian economy has recovered from the pandemic. 

The reopening of society has given a marked boost to the Norwegian economy and activity is now higher than before the corona pandemic. Unemployment has fallen further, and capacity utilisation seems to be close to a normal level,” the bank said in a statement.

The Norwegian Confederation of Trade Unions (LO) said that gradual interest rate rises could have several positive effects. 

When rates rise, the value of the krone is expected to rise, which will make investing in Norway an attractive proposition, which can help create jobs and wealth in Norway. 

It also spells good news for those hoping to go on holiday or foreign residents wanting to visit home as a strong krone means better value for money when travelling abroad. 

However, Roger Bjørnstad, chief economist at LO, said that it was vital that rates weren’t increased too quickly. 

“It is essential that we do not go too fast now and see an abrupt reaction – both in the housing market and the foreign exchange market,” he told NRK


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