'New era': Swedish bank warns interest rate could hit five percent
A new property report from Swedish bank Handelsbanken predicts that property prices will continue to fall throughout the spring as the average interest rate on mortgages rises to over five percent.
Increased inflation means the chances of Sweden's central bank decreasing the key interest rate any time soon is unlikely.
"We don't see any indications that Swedish inflation is on its way down, rather the opposite, and we believe the risk of financial instability currently weighs heavier for the central bank," Nyman said.
The bank therefore predict that the central bank will raise key interest rates by 0.75 percentage points in April and 0.5 percentage points in June, to a total of 4.25 percent, and the interest rate for consumers is likely to be higher than that.
"Given our prognosis of the central bank's key interest rate, the average variable rates offered by banks on mortgages could rise over five percent over the year, later dropping somewhat," she said.
The majority of Swedish homeowners have variable rate mortgages where the interest rate is updated every three months, and one third of all mortgages are due for a rate renewal within a year, meaning the effect of Sweden's central bank's rate increases are quickly felt.
The report describes a "new era for property prices", with continued drops in property prices as interest rates increase further during the spring.
"Property prices will fall with a total of 20 percent compared to the peak in February last year, and will then only increase slightly as households' purchasing power remains strained," Handelsbanken's head economist, Christina Nyman, said.
The amount which households are able to borrow has also decreased, as lenders' calculations factor in higher inflation and interest rates.
"For a family with two adults who are on the median salary and two children to have the same space in their budget calculations in 2023 as in last year, the amount they loan needs to decrease by around 14 percent," she said.
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Increased inflation means the chances of Sweden's central bank decreasing the key interest rate any time soon is unlikely.
"We don't see any indications that Swedish inflation is on its way down, rather the opposite, and we believe the risk of financial instability currently weighs heavier for the central bank," Nyman said.
The bank therefore predict that the central bank will raise key interest rates by 0.75 percentage points in April and 0.5 percentage points in June, to a total of 4.25 percent, and the interest rate for consumers is likely to be higher than that.
"Given our prognosis of the central bank's key interest rate, the average variable rates offered by banks on mortgages could rise over five percent over the year, later dropping somewhat," she said.
The majority of Swedish homeowners have variable rate mortgages where the interest rate is updated every three months, and one third of all mortgages are due for a rate renewal within a year, meaning the effect of Sweden's central bank's rate increases are quickly felt.
The report describes a "new era for property prices", with continued drops in property prices as interest rates increase further during the spring.
"Property prices will fall with a total of 20 percent compared to the peak in February last year, and will then only increase slightly as households' purchasing power remains strained," Handelsbanken's head economist, Christina Nyman, said.
The amount which households are able to borrow has also decreased, as lenders' calculations factor in higher inflation and interest rates.
"For a family with two adults who are on the median salary and two children to have the same space in their budget calculations in 2023 as in last year, the amount they loan needs to decrease by around 14 percent," she said.
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