Swedens Policy Rate

Mortgage rates rise despite unchanged benchmark rate – how it affects your wallet

Although the Riksbank decided to keep the benchmark rate unchanged at 1.75 percent on March 19, several major banks have chosen to raise their mortgage rates during late March and early April. This means that many households may face increased loan costs, even though no new adjustment to the benchmark rate has yet occurred.

What lies behind the banks' rate hikes?

Banks refer to several factors as possible reasons for raising mortgage rates without a change in the benchmark rate. According to analysts and the banks themselves, this includes rising expectations of future rate hikes and increased costs for funding their lending. The recent energy shock, with rapidly rising electricity and oil prices, has contributed to higher inflationary pressure. This leads banks to potentially adjust their rates in advance based on forecasts of upcoming interest rate increases and higher funding costs.

The Riksbank has noted that the banks' actions could influence future decisions regarding the benchmark rate. Among economists, there is also concern about so-called stagflation – a situation where inflation is high while growth is weak.

How this can affect you with mortgages, personal loans, and savings

• Households with variable-rate mortgages may see higher monthly costs when banks raise their rates, regardless of what the Riksbank does with the benchmark rate.
• The banks' actions show that mortgage rates do not always follow the benchmark rate exactly – it is therefore possible for your mortgage rate to rise even if the central bank's rate remains unchanged.
• The same principle applies to personal loans: interest costs can increase when banks perceive higher risk or funding costs, even without a change in the benchmark rate.
• Savings accounts may eventually earn higher interest if the banks' general interest rate level rises, but it is not certain that the increase will take effect immediately.

What should you keep in mind in this new interest rate reality?

• Keep track of information from your bank regarding rate changes – banks can adjust the interest rate on your loans with short notice.
• Distinguish between the benchmark rate and the mortgage rate; they are driven by different factors and do not always move in sync.
• Follow the development of energy prices and inflation, as these factors influence the actions of both banks and the Riksbank.
• Be cautious about concluding that inflation is under control just because the benchmark rate is unchanged – the banks' rate hikes indicate that uncertainty regarding inflation still exists.
• Households with variable-rate loans are affected most quickly by the banks' own hikes, while fixed-rate loans offer some temporal security against sudden changes.

Uncertainty ahead

Opinions among experts are divided on how quickly and strongly interest rates may rise in the future. The banks' rate hikes are partly preventive, based on forecasts of continued inflation and energy price developments. The Riksbank has highlighted that their future decisions could be influenced by the banks' actions, but there is no guarantee regarding when or how a change in the benchmark rate will occur.

Therefore, for you as a borrower or saver, it may be wise to follow announcements from both the banks and the Riksbank, and be aware that the interest rate environment can change rapidly, even without a new interest rate decision from the central bank.