Swedens Policy Rate

Mortgage Rates Rise Despite Unchanged Policy Rate – How It Affects Your Wallet

On March 19, the Riksbank decided to keep the policy rate unchanged at 1.75 percent. Despite this, several of Sweden's largest banks have raised their mortgage rates during late March and early April. The banks justify these increases with higher costs for borrowing money on the market, a trend driven partly by rising energy prices and persistently high inflation. For households, this means that mortgage costs can increase immediately, even without any change in the Riksbank's policy rate.

Why Are Banks Raising Mortgage Rates When the Policy Rate Stays Put?

The policy rate is the interest rate banks pay when borrowing money from the Riksbank. While it influences the interest rate environment in the economy, it is not the only factor determining mortgage rates. Banks are also affected by market rates, which reflect the cost of financing on the capital markets. During March, these market rates have risen, partly due to higher energy prices and uncertainty regarding inflation. Consequently, banks have raised their mortgage rates to adjust to these increased costs.

This highlights a potential gap between the central bank's decisions and what households actually end up paying. Furthermore, the Riksbank has commented on the banks' rate hikes, indicating that this development could influence future policy rate decisions, especially if inflation is not curbed.

How Mortgages, Personal Loans, and Savings Are Affected

• Variable-rate mortgages: Households with variable-rate mortgages may feel the impact immediately through higher monthly payments. This also applies to those whose fixed-rate periods are expiring soon.
• Choosing an interest rate model: Since both market rates and expectations for future policy rates have risen, it may be timely to compare different interest rate models and terms to find a solution that suits your personal finances. Uncertainty surrounding inflation and energy prices means interest rates could remain higher than expected for longer.
• Personal loans: Personal loans can also be affected if banks adjust their rates generally. If you have unsecured loans, you may also face higher interest costs in the future.
• Savings: A higher interest rate environment could mean that banks increase the rates on savings accounts and deposits. However, these increases often happen more slowly than for loans, so it is wise to compare offers from different banks.

What Can You Do Now?

• Review your loan terms and contact your bank to find out if and when your rate will be raised.
• Compare different interest rate models and terms to find a solution that fits your financial situation and risk tolerance.
• Monitor the development of inflation and energy prices, as these factors drive both market rates and future interest rate decisions from the Riksbank.
• For those with savings accounts: Compare savings rates between different banks and be prepared for it to take time before higher rates are reflected in deposits.
• Do not confuse the policy rate with the rate you actually pay – it is the banks' own decisions that determine your monthly costs right now.

Key Things to Keep an Eye On Moving Forward

• The Riksbank's future interest rate decisions may be influenced by the banks' rate hikes, especially if inflation continues or energy prices rise further.
• There is a risk that Sweden could enter stagflation, a situation characterized by both high inflation and low growth. This could make the interest rate environment more difficult to predict and prolong the period of higher rates.
• Different banks may raise rates at different speeds and to varying degrees. It may be worthwhile to compare terms and potentially negotiate your rate.