What Norway’s double interest rate hike means for your finances 

Norway's central bank raised the key interest rate by 0.5 percentage points for the first time in 20 years, and experts have warned there will be several knock-ons for households. 

Pictured is Oslo.
This is what the rising interest rates mean for your wallet. Pictured is Oslo city centre from above. Photo by Gunnar Ridderström on Unsplash

Earlier this week, Norway’s central bank, Norges Bank, raised the key policy rate from 0.75 percent to 1.25 percent. 

“We understand that some are concerned when we announce such a rapid rise in interest rates. For some, it will be demanding, but most households have the finances to pay the loan with a slightly higher interest rate,” governor of the bank, Ida Wolden Bache, told public broadcaster NRK

Norges Bank also announced that the key interest rate would be raised again in August to 1.5 percent. The bank said it was raising interest rates to curb high inflation. 

“The committee’s assessment is that there is a need for a clearly higher interest rate to stabilize inflation around the target,” a press release announcing the rise stated. 

Inflation in Norway rose to its highest level since 1988 last month, figures from Statistics Norway show. The Consumer Price Index for May showed that prices were 5.7 percent higher than they were a year ago.  

READ MORE: Inflation in Norway reaches its highest level since 1988

By next summer, Norges Bank expects the key policy rate to be raised to around 3 percent. 

The Forecast Centre, which offers financial analysis, told newswire NTB that the rapid rate rises would lose to an uncertain time for households. 

“The most vulnerable households will enter a period of considerable uncertainty. There is no way around it,” chief economist Nerja Macic told NTB. 

There are around 436,000 financially vulnerable households in Norway, according to figures from the national stats agency Statistics Norway. A vulnerable household has debts three times higher than its income and less than 100,000 kroner in the bank. 

Norway’s Real Estate Association said that young homeowners and first-time buyers could also struggle due to the interest rate rises. 

“Many have incurred a very high debt ratio in anticipation of low-interest rates for many years. With today’s interest rate forecast, many must prepare for significantly higher interest costs than they were predicted when they received their first mortgage,” Carl O. Giving, CEO of the Real Estate Association, told newswire NTB. 

“At the same time, the threshold to the housing market will be very high for many first-time buyers who are allowed to borrow less when interest rates rise,” he added. 

A key interest rate of 1.25 percent means yearly repayments of 12,500 kroner per million of debt. For example, for million kroner of debt at an interest rate of 1.25 percent means annual repayments of around 50,000 kroner per year. 

This week’s rate rise meant repayments would rise by 5,000 kroner per year for every million one owes, in theory at least. 

However, banks typically lend at above the key interest rate, meaning payments will be higher than the current 1.25 percent key policy rate. 

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‘One in three’ Norwegian homes worse off than at start of 2022

The proportion of households in Norway that are struggling to make ends meet is increasing, according to new analysis.

'One in three' Norwegian homes worse off than at start of 2022

In a new report, analysis institute Consumption Research Norway (SIFO) at Oslo Metropolitan University concludes that one in three homes in Norway have worse finances now than they did in January this year.

The ability to pay bills, interests and loan repayments are meanwhile cited as a problem for one in four of all households.

“We are in an expensive time, which has been building up since August last year and got stronger during the winter. We are now talking about higher prices for energy, fuel, food and higher interest,” researcher Christian Poppe told broadcaster NRK.

“The sum of this has impacts unequally and some people are hit extra hard,” he said.

Two thirds of people who spoke to researchers for the report said that they had been forced to rein in spending due to higher living costs.

Cutbacks reported include reduced use of electricity, less car use and less social activity.

21 percent said that they had reduced their food budget to make ends meet, a number that increases to 60 percent amongst those who said they had been hardest-hit.

“There are isolated warning signs in this report and the proportion of people saying they have to save on their food budget is high,” Poppe told NRK.

“There is a limit to how little you can spend on food and in some cases people already don’t have enough money for food,” he said.

Researchers spoke to a representative selection of Norway’s 2.1 million households to produce the report, which shows a significant increase in economic stress at homes compared to a similar study from July 2021.

66 percent said they are finding it difficult to pay energy bills, with those in the south of Norway more severely affected than those in the north.

Energy prices in southern Norway have been up to 131 times higher than those in the south in recent weeks, according to Nordpool figures.

The consumer price index, a measure of the cost to households of everyday goods, has increased by 6.3 percent since last summer, NRK writes.