Swedens Policy Rate

Mortgage rates rise despite unchanged central bank rate – how it affects your finances

The Riksbank decided to keep the central bank rate unchanged at 1.75 percent. Despite this, several major banks have raised their mortgage rates at the end of March. This development may seem contradictory, as many expect mortgage rates to follow the Riksbank's decisions. In practice, however, mortgage rates are influenced by more factors than just the central bank rate.

Central bank rate and mortgage rate – two different things

The central bank rate is the interest rate set by the Riksbank to influence inflation in Sweden. It serves as a guiding star for interest rates across the entire economy, but banks determine their own mortgage rates based on their costs, risk assessments, and market expectations.

Banks' mortgage rates are influenced by, among other things:

• Expectations regarding future inflation and interest rate trends
• The cost of borrowing money on the market
• Competition between banks

This means that mortgage rates can rise even if the central bank rate remains unchanged.

Why are banks raising mortgage rates now?

The background to the banks' rate hikes is concern over persistently high inflation, particularly linked to rising energy prices. Analysts and banks see signs that inflation could become more prolonged, which could affect expectations for future interest rate developments. This is causing banks to adjust their mortgage rates upward now based on their own forecasts and risk assessments.

This shows that banks sometimes act ahead of the Riksbank, adjusting their rates based on their own assessments of market conditions.

What does this mean for your wallet?

• If you have a variable-rate mortgage, your monthly costs could increase with the next billing cycle, even if you haven't received any information about a central bank rate hike from the Riksbank.
• Interest rates on personal loans and savings accounts may also move upward, as banks often adjust multiple rates simultaneously when market conditions change.
• Those with mortgages should pay attention to whether their bank has adjusted the terms and compare them with other banks.
• Rising energy prices and continued inflationary pressure mean that further rate hikes from banks could occur before the Riksbank potentially adjusts the central bank rate.

How can you plan ahead?

• Keep track of your actual mortgage rate – it can rise even without news of a changed central bank rate.
• Compare terms between banks and review whether you have the opportunity to negotiate your interest rate.
• Create a buffer in your finances to handle higher interest costs, especially if you have a variable-rate loan.
• Follow developments regarding inflation and the Riksbank's future announcements to be prepared for new changes.

It is important not to confuse the central bank rate with the mortgage rate. Banks' decisions regarding mortgage rates can signal where interest rates are heading, but it is not the same as an interest rate announcement from the Riksbank. Uncertainty surrounding inflation and energy prices means the interest rate market may be more volatile than usual in the near future.