There is one word in particular that you must pay attention to if the banks use when they announce interest rate increases in the coming weeks.
Thursday is an interest rate meeting at Norges Bank. Then the central bank will raise the key interest rate by 0.25 percentage points. The banks will follow suit, and there are plans for more increases in the coming year.
Banks raise interest rates on new loans almost immediately. For existing loans, you will be notified with a six-week notice period at the beginning of November that your mortgage interest rate has been raised. But by how much?
– There are two things you should follow: Check the interest rate on your mortgage against the interest rate increases, and then you must follow what your bank says and does in the future. If the bank only raises mortgage rates, but not deposit rates, it is okay to talk to the bank, says Sindre Noss in Renteradar.no to Nettavisen Økonomi.
– The interest rate alerts now often take place in a fairly discreet way in the form of the inbox in the online bank and not via letters as in the past, he reminds. Statistics Norway does not have the exact number with a form of bank loan in Norway, but it is probably around 2 million.
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Up to
And then there was the key word. During the fall in interest rates last spring, many banks used the wording “with up to”, as DNB in March 2020. Mortgage customers should therefore pay close attention to the next few days if the banks have this word in their press releases when setting interest rates.
– It is a bit difficult to say anything in advance about this before we know the wording from the banks. But I definitely think many banks will try to increase the interest rate on all mortgages by 0.25 percentage points, while deposits can be handled differently, says Noss.
– It may be that the banks say that they increase the deposit rate by up to 0.25 percentage points, but for example keep the interest rate on the payroll account at zero, he continues.
An important point is that deposits have increased sharply during the corona pandemic. The bank’s deposit coverage has therefore increased, which makes it even more tempting for banks to hold back on interest rates.
DNB first?
Noss still believes that some banks that want to increase market shares do not necessarily increase mortgage rates with the entire interest rate increase. And historically, DNB as the market leader is the first to announce their changes.
– In all probability it will be DNB again this time, but they have been criticized for being the first. From time to time, we have seen that Danske Bank is out at the earliest, and it may also be Nordea’s turn. Nordea now stands out a little from DNB and is up to customer satisfaction. The bank has increased its market shares and is a bit in the wind, comments Noss
In its analysis tool, Rentedar.no has visualized the list prices of banks for both mortgages and deposits.
– As mortgage rates have now been largely at rest for over a year, it is easy to analyze which customers have a gold interest rate and which have a poor interest rate. When interest rate increases begin, the picture can become more complicated, he says.
Six categories
Renteradar.no has in advance of the interest rate meeting looked more closely at the effective interest rate their users have on the mortgage. In total, they have studied 19,000 users in the period 15 September 2020 to 15 September 2021. Mortgage customers are divided into six categories:
- Very poor interest rates: 90 percent of users have better interest rates
- Bad: 75 percent have better interest rates
- Medium: 50 percent have a better interest rate
- Good: 25 percent have better interest rates
- Very good: 10 percent have a better interest rate
- Gold interest rate: Only 5 percent have a better interest rate
And as the graphic below shows, a very poorly effective housing rent today is around 2.5 percent. At the other end of the scale, the gold interest rate is down to 1.4 per cent.
– It is especially those with “bad” and “very bad” interest rates who have a lot to save by negotiating the interest rate with their bank. Here we often find customers in the smaller savings banks, but also customers of large banks such as DNB, says Noss.
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Saves 13,000 kroner
The average interest rate for users is 1.79 percent.
– Our users with very poor interest rates who have used the bargaining function in our service, have on average received 0.43 percentage points lower interest rates. For a loan of 3 million, it amounts to almost 13,000 kroner a year. If they are willing to change banks, there is even more to save.
– How do the banks react to such bargaining requests?
– We experience that banks often meet customers halfway when they bargain down interest rates. If the customer can get 1 percentage point better interest rate on moving the mortgage, the existing bank typically offers to lower the interest rate by around 0.5 percentage points.
Different a lot
Noss says that many customers then choose to stay in their bank rather than take the job of moving the mortgage. He believes that the price differentiation in the banks is large. It has something to do with the credit quality of customers, but that is not the main explanation.
– And it will not surprise me if the differentiation of mortgage customers increases in the future. The banks will raise interest rates for those who do not participate, while some banks will not increase lending rates by as much as Norges Bank raises the key interest rate.
– The advice is to check your interest rate already now. If you go into the interest rate increases with a good interest rate, it is limited how bad it can be. Then you have a good starting point, says Noss.
The figures for Renteradar.no show large differences in what different mortgage customers have in interest. However, according to Noss, the major explanatory variable is not that mortgage customers with high interest rates pose a greater risk to the bank.
Discriminates against the elderly
– Often it is older customers with a low loan-to-value ratio which has the worst interest rate. The biggest difference between good and bad interest rates lies in whether the customer is willing to negotiate or not, he says.
And now that interest rates are rising, there is a danger that the differences will increase further. It is with interest rate changes that banks can increase the margin further on customers who do not follow.
– We experienced this in the spring of 2020, when there were large differences in how large interest rate cuts different customers received in many of the banks, Noss emphasizes.
Renteradar.no has a commercial collaboration with several Norwegian banks, but not with, for example DNB and Sbanken.
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