Norway's latest interest rate pushes consumers near 'breaking point'
Norway's central bank needs to proceed with caution as its latest interest rate hike has pushed households to their limit, the Homeowners Association warned Thursday.
Norges Bank, the central bank of Norway, raised the key interest rate to 3.75 percent on Thursday. The increase of 0.50 percentage points means that the key policy rate in Norway is at its highest level since 2008.
Interest rate rises are used to try and curb inflation, with the added effect of also strengthening the krone.
READ MORE: Norway’s double interest rate hike provides boost to weak Norwegian krone
Still, a higher key policy rate means more expensive loan and remortgage payments for consumers. A key policy rate of 3.75 percent rising to as high as 4.25 percent in the autumn translates to consumer interest rates of between five and six percent.
"All ordinary wage earners with mortgages are noticing it now. With today's interest rate increase, a household with four million kroner in debt has, within one year, increased interest costs of close to 100,000 kroner a year," consumer economist Thea Olsen at Danske Bank told Norwegian newswire NTB.
A year ago the key interest rate was 1.25 percent, 2.5 percentage points lower than today.
The consumer interest organisation, the Homeowners Association, has warned the rapidly rising interest rates are stretching households' finances.
"A double interest rate increase of 0.5 percentage points was a potent (move) from Norges Bank, which will be felt well in the wallets of Norwegian households," Carsten Henrik Pihl from the Homeowners Association told NTB.
"There are many indications that we are approaching the breaking point for many people's household finances. Therefore, Norges Bank must now proceed cautiously," he said.
Meanwhile, the Norwegian Association of Estate Agents said it feared supply and demand issues in the market and more young people unable to buy as a result of the rate hikes.
"After today's sharp increase in interest rates, we note that the development of interest rates appears to be relatively unpredictable. The new interest rate level will help to strengthen the market divide between new and used homes," managing director Carl O. Geving added.
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Norges Bank, the central bank of Norway, raised the key interest rate to 3.75 percent on Thursday. The increase of 0.50 percentage points means that the key policy rate in Norway is at its highest level since 2008.
Interest rate rises are used to try and curb inflation, with the added effect of also strengthening the krone.
READ MORE: Norway’s double interest rate hike provides boost to weak Norwegian krone
Still, a higher key policy rate means more expensive loan and remortgage payments for consumers. A key policy rate of 3.75 percent rising to as high as 4.25 percent in the autumn translates to consumer interest rates of between five and six percent.
"All ordinary wage earners with mortgages are noticing it now. With today's interest rate increase, a household with four million kroner in debt has, within one year, increased interest costs of close to 100,000 kroner a year," consumer economist Thea Olsen at Danske Bank told Norwegian newswire NTB.
A year ago the key interest rate was 1.25 percent, 2.5 percentage points lower than today.
The consumer interest organisation, the Homeowners Association, has warned the rapidly rising interest rates are stretching households' finances.
"A double interest rate increase of 0.5 percentage points was a potent (move) from Norges Bank, which will be felt well in the wallets of Norwegian households," Carsten Henrik Pihl from the Homeowners Association told NTB.
"There are many indications that we are approaching the breaking point for many people's household finances. Therefore, Norges Bank must now proceed cautiously," he said.
Meanwhile, the Norwegian Association of Estate Agents said it feared supply and demand issues in the market and more young people unable to buy as a result of the rate hikes.
"After today's sharp increase in interest rates, we note that the development of interest rates appears to be relatively unpredictable. The new interest rate level will help to strengthen the market divide between new and used homes," managing director Carl O. Geving added.
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