Economists Advise Households To Prepare For Interest Rates Of 1.5–2.0%
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- 19 Apr 2022
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Rapidly rising interest rates can destabilise the finances of unprepared mortgage borrowers in Finland, reports STT.
Euribor 12, the most popular reference rate for housing loans in Finland, has increased faster than analysts expected in the first few months of the year, climbing above zero last week for the first time since 2016.
Reijo Heiskanen, the chief economist at OP Financial Group, and Jan von Gerich, the chief analyst at Nordea, on Monday told the Finnish news agency that they expect the rate to rise to 1.5 per cent in the coming year or two but warned that forecasting is presently difficult due to accelerating inflation.
“I’ve personally thought that it could be in the region of 1.5–2 per cent,” said von Gerich. “That’s the baseline projection for interest rates assuming we don’t run into a bigger inflation problem.”
Consumer prices rose by 5.8 per cent year-on-year in Finland in March.
Nordea and OP Financial Group are the largest mortgage lenders in Finland, commanding a combined 68 per cent of outstanding housing loans at the end of last year, according to the Bank of Finland.
STT on Monday wrote that a borrower with an outstanding housing loan of 150,000 euros has only had to pay 1,050 euros a year if the bank margin is 0.7 per cent. Assuming that Euribor 12 rises to 1.5 per cent and the total interest rate for the borrower consequently to 2.2 per cent, the annual costs would more than double to 3,300 euros.
Bank margins vary roughly between 0.5 and 1.0 per cent in Finland.
As house is the most valuable asset of many households, interest rates can also have another impact on the wealth of Finnish households. Both Heiskanen and von Gerich estimated that rising interest rates will slow down house price increases, although not to the extent that they would reverse the upward trend in the house market.
“That interest rates are rising will mitigate house price developments. It doesn’t mean an immediate turn-about in the market,” said Heiskanen.
Even though inflation rates are expected to settle at a level that is reasonable in historical comparison, mortgage borrowers are advised to prepare for unexpected developments that add to their borrowing costs. Read More...
