Should you expect an increase in mortgage interest rates in Norway?
The price crisis in Norway shows no signs of stopping, and record-level inflation might lead to increased interest rates on mortgage loans in the upcoming months.
According to Statistics Norway (SSB), the consumer price index (CPI) in Norway rose 6.9 percent in the last twelve months.
High inflation might make the Central Bank (Norges Bank) increase the key interest rate more than expected – which could, in turn, lead to commercial banks raising interest rates on mortgage loans.
The figures reported by the SSB have surprised most Norwegian economists – the price growth in the country in a 12-month period hasn't been higher since June of 1988.
The reported inflation statistics are higher than what Norges Bank estimated in its monetary policy report from September.
READ MORE: Latest inflation figures: Which costs are rising the most in Norway?
At the time, based on its outlook, the Central Bank believed it was reasonable to expect that the interest rate would be increased by 0.25 percentage points in November and December.
DNB expects interest rate hike in November
However, as real inflation surpassed projections, DNB – Norway's largest bank – believes that Norges Bank will increase the key interest rate by 0.5 percentage points in November.
"Based on yesterday's inflation figures, we think Norges Bank will raise the (key) interest rate by 0.5 percentage points in November.
"A faster hike is also supported by the fact that growth in the mainland economy now appears to be stronger than Norges Bank assumed in its (September) analyses," DNB says.
Furthermore, DNB expects that the key interest rate will be raised further at the meetings in December and January, by 0.25 percentage points at each meeting, to an interest rate of 3.25 per cent.
But there is also a significant risk that Norges Bank will increase interest rates by 0.5 percentage points in December, DNB warns.
How Norges Bank's decision influence mortgage loans
When Norges Bank increases its key interest rates, commercial banks usually follow suit and raise interest rates for both mortgages and deposits.
This is standard practice. All over the world, commercial banks borrow money directly from central banks. While a central bank lends money to commercial banks, the banks, in turn, lend money to households and businesses.
As Euronews recently explained, when a commercial bank pays back what it borrowed from a central bank, it needs to pay an interest rate.
The central bank has the power to set that interest rate, so if it charges higher rates to commercial banks, commercial banks will, in turn, increase the rates they offer to consumers and businesses who need to borrow money.
This "interest rate dance" can also be seen in the Norwegian financial market.
In September, DNB and SpareBank 1 raised their interest rates for mortgages and deposits by 0.5 percentage points after Norges Bank increased its key interest rate to 2.25 percent.
"As a result of Norges Bank's decision to increase the key interest rate by 0.5 percentage points at the interest rate meeting on September 22, DNB has decided to increase the interest rate on mortgages and deposits by up to 0.5 percentage points," Ingjerd Blekeli Spiten, the head of the retail market at DNB, said at the time.
Shortly after the interest rate notice from DNB, SpareBank 1 also announced that they would do the same.
"Norges Bank has long announced that the key interest rate will rise to curb the high inflation rate. Even after this interest rate increase, the mortgage interest rate is at a historically low level. We believe that most people will tolerate the announced interest rate increases," Nelly Maske, an executive at SpareBank 1, said at the time.
So, as things now stand, expect interest rates on your mortgage loans in Norway to increase both in November and December, as commercial banks will likely increase these in lockstep with Norges Bank's key interest rate hikes.
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According to Statistics Norway (SSB), the consumer price index (CPI) in Norway rose 6.9 percent in the last twelve months.
High inflation might make the Central Bank (Norges Bank) increase the key interest rate more than expected – which could, in turn, lead to commercial banks raising interest rates on mortgage loans.
The figures reported by the SSB have surprised most Norwegian economists – the price growth in the country in a 12-month period hasn't been higher since June of 1988.
The reported inflation statistics are higher than what Norges Bank estimated in its monetary policy report from September.
READ MORE: Latest inflation figures: Which costs are rising the most in Norway?
At the time, based on its outlook, the Central Bank believed it was reasonable to expect that the interest rate would be increased by 0.25 percentage points in November and December.
DNB expects interest rate hike in November
However, as real inflation surpassed projections, DNB – Norway's largest bank – believes that Norges Bank will increase the key interest rate by 0.5 percentage points in November.
"Based on yesterday's inflation figures, we think Norges Bank will raise the (key) interest rate by 0.5 percentage points in November.
"A faster hike is also supported by the fact that growth in the mainland economy now appears to be stronger than Norges Bank assumed in its (September) analyses," DNB says.
Furthermore, DNB expects that the key interest rate will be raised further at the meetings in December and January, by 0.25 percentage points at each meeting, to an interest rate of 3.25 per cent.
But there is also a significant risk that Norges Bank will increase interest rates by 0.5 percentage points in December, DNB warns.
How Norges Bank's decision influence mortgage loans
When Norges Bank increases its key interest rates, commercial banks usually follow suit and raise interest rates for both mortgages and deposits.
This is standard practice. All over the world, commercial banks borrow money directly from central banks. While a central bank lends money to commercial banks, the banks, in turn, lend money to households and businesses.
As Euronews recently explained, when a commercial bank pays back what it borrowed from a central bank, it needs to pay an interest rate.
The central bank has the power to set that interest rate, so if it charges higher rates to commercial banks, commercial banks will, in turn, increase the rates they offer to consumers and businesses who need to borrow money.
This "interest rate dance" can also be seen in the Norwegian financial market.
In September, DNB and SpareBank 1 raised their interest rates for mortgages and deposits by 0.5 percentage points after Norges Bank increased its key interest rate to 2.25 percent.
"As a result of Norges Bank's decision to increase the key interest rate by 0.5 percentage points at the interest rate meeting on September 22, DNB has decided to increase the interest rate on mortgages and deposits by up to 0.5 percentage points," Ingjerd Blekeli Spiten, the head of the retail market at DNB, said at the time.
Shortly after the interest rate notice from DNB, SpareBank 1 also announced that they would do the same.
"Norges Bank has long announced that the key interest rate will rise to curb the high inflation rate. Even after this interest rate increase, the mortgage interest rate is at a historically low level. We believe that most people will tolerate the announced interest rate increases," Nelly Maske, an executive at SpareBank 1, said at the time.
So, as things now stand, expect interest rates on your mortgage loans in Norway to increase both in November and December, as commercial banks will likely increase these in lockstep with Norges Bank's key interest rate hikes.
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