Swedens Policy Rate

Mortgage rates rise despite unchanged policy rate – how household finances are affected

On March 19, the Riksbank decided to keep the policy rate unchanged at 1.75 percent. Shortly thereafter, several of the major banks have nevertheless raised their mortgage rates. This means that many households may face higher monthly costs for their mortgages immediately, even though the Riksbank has not changed its monetary policy for the time being.

Why are banks raising rates now?

The banks' rate hikes have raised questions because they are occurring without a change in the policy rate. According to the banks, the increases are motivated by rising costs for their own funding and a generally rising interest rate level in the market. In particular, energy prices have risen rapidly, contributing to higher inflation and leading the market to expect that the Riksbank may raise the policy rate in the future.

Thus, it is not only the current policy rate that affects mortgage rates, but also expectations regarding future interest rate decisions and the banks' financing costs. Analysts from institutions such as the Swedish Economic Institute (Konjunkturinstitutet) and SEB have recently adjusted their forecasts toward higher rates, citing energy prices and continued inflationary pressure.

What does this mean for your finances?

• If you have a variable-rate mortgage, you can be directly affected by the banks' increases, regardless of what the Riksbank does with the policy rate.
• For new loans or renegotiations, the interest rate environment may become more expensive, as banks are already factoring in higher future costs.
• Savers may eventually receive better interest rates on savings accounts and bonds if market rates continue to rise, but the development is uncertain and depends on how inflation evolves.
• Private loans are also affected by the new interest rate environment, which could mean higher interest costs for consumer loans.

It is important to distinguish between the policy rate, which is set by the Riksbank, and the market rates that govern the banks' costs. The banks' justifications for the increases are based on their assessment of the future rather than solely on today's policy rate. If you have a variable-rate loan, increases may take effect quickly, whereas fixed-rate loans offer more predictability but could become more expensive if you lock in at a high level.

Uncertainty and risks ahead

The Riksbank has commented that the banks' rate hikes could influence future policy rate decisions, as they are already affecting household finances. At the same time, concerns about stagflation – that is, the combination of high inflation and low growth – have increased among experts following the new announcement. Currently, there is no clear guidance on when or by how much the policy rate might be raised, but both the market and the banks are preparing for a tougher interest rate environment.

Things to consider as a borrower or saver

• Follow developments regarding both the policy rate and the banks' own interest rate decisions. They can change independently of each other.
• Be aware of whether you have a variable or fixed-rate loan, as the impact on your finances differs.
• Review your budget and calculate how a higher interest rate could affect your costs, even if you do not plan to take out a new loan right now.
• For savings, higher rates may offer better terms, but there is always a risk that the situation could change quickly if inflation eases or the economy weakens.

The development shows that household finances can be affected by more factors than just the Riksbank's announcements. Following signals from both the market and the banks is becoming increasingly important to understand your own finances in the future.