Norges Bank predicted in March that one The typical mortgage rate at the beginning of 2024 will be 4 per cent.
The online newspaper asked a number of chief economists what they expect Norges Bank to do at the interest rate meeting on Thursday. Chief economist Kjersti Haugland in DNB Markets believes in a 0.25 percent increase, but saw corresponding increases at each meeting until March next year. Then we already have in one year mortgage interest rates of around 4 percent.
In addition to chief economists and other expert circles coming up with forecasts, the market participants “bet” on what the interest rates will be in a few months or years. And these expectations are more pessimistic than what the chief economists and Norges Bank have come up with so far, given that you have a loan.
– My conclusion is that the market has more rights than the chief economists. If the market gets it right, the mortgage interest rate will be over five percent in just under two years, says Sindre Noss in Renteradar to Nettavisen.
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Adjustable
He has compared the market’s interest rate expectations today with Norges Bank’s estimates in March, estimates which, according to experts, will be adjusted upwards on 23 June. Banks and other players in the financial markets trade different interest rate products among themselves. Here, much higher prices apply.
Examples of such fixed income products are FRAs (future interest rate agreements) and interest rate swaps. Through these agreements, large companies and banks can secure interest rates in the future. By analyzing the prices of these interest rate products, one can find out what the market thinks about future interest rates.
In March, Norges Bank assumed seven interest rate increases up to 2024, each of 0.25 percentage points. In that case, it would give a key interest rate of 2.50 per cent at the end of 2023 and thus a typical mortgage rate of four per cent.
Also read: Big bang for everyone with a loan: Many people have no idea what it will mean
Twice as high
– Interest rate radar analysis of these prices shows that the market believes that mortgage rates will be far higher than Norges Bank’s forecasts from March. The market expects twice as high an interest rate rise as Norges Bank at the rest of the interest rate meetings this year, says Noss. This is shown in the graph below.
Figures for Renteradar’s users show that those with the lowest mortgage interest rates today pay two percent. The average interest rate is 2.4 per cent, which is perhaps a little lower than the real average among borrowers.
For a customer with three million in mortgages, an interest rate of 2.4 percent means NOK 6,000 in monthly interest costs. But if the market is right, the monthly interest costs will more than double to more than NOK 12,000 in just under two years.
We have reproduced the increased expenses below. Monthly interest expenses in November can be up to NOK 8625, at NOK 11,250 in May 23 and as high as NOK 12,750 in May 2024.
Will strike
– Are you worried about borrowers if the market gets it right?
– It’s going to hit. One thing is the interest rates in isolation, but there are also other events that affect the private economy, Noss answers. He points out more expensive electricity, fuel, food and generally higher prices, for example for renovations.
– Consumers get less left over for other things, says Noss.
There are some “mitigating circumstances”. You get a 22 percent tax deduction for the increased interest rates. As most have annuity loans, the installments fall with higher interest rates. This is because in an annuity loan, the sum of what you pay in interest and installments is constant every month, the term amount.
Dramatic increase
– The average customer thus does not get quite as high additional expenses. Still, it is a dramatic increase to go from 6,000 kroner a month today to 12,500 kroner at the beginning of 2024, says Noss.
Interest rate radar already has several users today who have a mortgage rate of almost up to three percent. They think Noss should negotiate the interest rate, so that they avoid an increase or two.
– What can borrowers expect from increases when Norges Bank raises interest rates?
– Those who are still high, can negotiate on somewhat better terms. But those who today have interest rates down to two percent, probably do not have much to go on. For them, the mortgage interest rate will probably be raised corresponding to the key interest rate, Noss answers.
Historically, floating mortgage rates are about 1.50 percentage points above the key interest rate in Norges Bank and approx. 1.25 percentage points above the important 3-month money market rate. It is currently at over 1.4 per cent (see graph below) and has increased sharply in the past year.
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