Market interest rates have risen much more than fixed-rate mortgages, but banks are raising interest rates.
– Some banks have begun to raise fixed interest rates, but it can be expected in the future that the banks will increase fixed interest rates further. If you want more security in your finances and consider a fixed interest rate on the mortgage, it may be a good idea to tie the interest rate now, says Sindre Noss in Renterdar.no to Nettavisen Økonomi.
Danske Bank has just adjusted its fixed interest rates, but not by much. Press contact Øystein André Schmidt at Danske Bank says they have long said that they should be a guarantor of healthy competition in the Norwegian market. Favorable loan offers are an important part of this.
– Of course, this promise stands by. We follow the market closely, assess the swap rates (see below, editor’s note) daily and continuously change the fixed rates if necessary, says Schmidt.
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On 1 February, Danske Bank raised fixed interest rates for 3, 5 and 10 years by 0.12 percentage points and 0.15 percentage points, respectively, for the last two. The bank can offer a nominal interest rate of 1.59 per cent if you want to tie the interest rate for the next three years.
As a member of Akademikerne, you can get 1.84 per cent for fixed interest rates for five years (see table below) in Danske Bank, while you have to pay 2.14 per cent to tie interest rates for the next ten years. This is probably lower than what floating mortgage rates will be in two or three years, something we will return to.
Central to what you have to pay in fixed interest rates are the so-called swaprentene in the market. These interest rates express what the market expects short-term money market interest rates to be in the future and what the banks must pay to borrow money with a long maturity.
This money is then lent to customers who want to tie the interest rate. Swap rates have risen sharply since last autumn, which results in higher fixed interest rates for loan customers.
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– There is often a tendency for banks to be a little slow in raising their fixed interest rates when swap rates rise. The five-year swap rate has increased by more than 0.5 percentage points since early this autumn, says Noss,
Some banks still offer 5 years’ effective fixed interest rate on mortgages below and around 2 per cent. In the table below, with Renteradar.no as a source, we have listed 5 years of fixed interest rate offers from some selected banks.
The assumptions are that customers are over 34 years old, have 3 million in mortgages and a loan-to-value ratio of 65 per cent. According to Noss, the offers are the best list prices the banks offer to all or some customer groups. And as the table shows, it is possible to tie the interest rate for the next five years to a very pleasant interest rate.
Banks do not currently earn particularly well on fixed-rate loans and less than what they earn on floating-rate loans.
– With a fixed interest rate offer of 2 per cent, this means that the bank’s margin is only 0.5 percentage points above the borrowing cost. A good effective interest rate on mortgages with floating interest rates is currently around 1.5 per cent.
– Here, the banks have a margin of around 0.7 percentage points. Normally, banks want a higher margin on fixed-rate loans, but right now many banks have a lower profit margin on fixed-rate loans. Therefore, it may pay to tie the interest rate now before the banks turn it up further, says Noss.
Interest rate and currency strategist Nils Kristian Knudsen of Handelsbanken Capital Markets says that the reason for the rise in interest rates in the market is somewhat complex. There are several factors at play.
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– To begin with what is a little special for Norway, there is a need for a distinctive Norwegian interest rate rise. The fixed income market rates a successively higher key policy rate going forward, and the markets in other countries do not. Norway will be the first country in the western world to raise the key policy rate, says the strategist.
This has since May last year been at a record low 0 percent. When the fixed income market expects higher key interest rates and thus higher short-term interest rates, it also puts pressure on long-term loans, the fixed-rate loans.
Normally, there is a difference between short-term money market interest rates (Nibor) and long-term government interest rates of 0.4-0.5 percentage points. Today the difference is approx. 0.75 percentage points, the interest rates are 0.46 per cent (see graph below) and 1.22 per cent, respectively.
1 percentage point
– So then it is time for interest rate increases from Norges Bank?
– Yes, over the next three years, an increase of 1 percentage point has been priced in. But it is still half a percentage point lower than when the central bank began to lower interest rates last spring. We are not quite back where we were, but expectations of up to 1 percent have strengthened in recent weeks, Knudsen answers.
If the fixed income market is correct in its predictions, Norges Bank’s key interest rate could be as high as 1 per cent already in 2023 and at least in 2024. Short-term money market interest rates, which largely control floating rate mortgages, are forecast to rise to 1.3 per cent. .
Historically, the best floating mortgage rates in the market are approx. 1 percentage point higher than money market interest rates. You can therefore keep in mind a floating mortgage rate from 2.3 percent and upwards when you consider whether you want to tie the interest rate now.
The second explanation for the rise in interest rates is a fairly sharp rise in interest rates in the United States. US interest rates affect long-term interest rates in Europe and thus also interest rates in Norway.
– US interest rates are a bell in the fixed income market. We have seen a form of normalization in the sense that the authorities have succeeded through stimulus packages. These packages support the expectations that the economy will recover, and that inflation in the longer term will be at a higher level, says Knudsen
The ten-year US government bond yield, also called the world’s most important yield, bottomed out in August last year at approx. 0.5 percent and is now up to a scant 1.2 percent. It is virtually identical to the corresponding Norwegian interest rate.
The interest rate is an important temperature gauge for the economy. An upturn often signals belief in higher economic growth and higher inflation. The lesson from the financial crisis in 2008 and 2009 was, however, that the US Federal Reserve took in a little too little and ended the stimuli a little too soon.
– The signals the central bank and others are sending out now are that we must do what we can to support an upturn. So far, they have largely succeeded, American interest rates have risen, says Knudsen.
But in Europe the interest rate picture is more mixed, and in a country like Italy, long-term bond yields have actually fallen somewhat.
Too strong a rise in interest rates and too high inflation may be negative for the stock markets, but both the US and Norwegian stock markets are constantly reaching new highs.
– So far, the stock market is not intimidated by the rise in long-term interest rates in the US. The market sees that there is a connection between the measures that are taken and what is expected to come out at the other end.
– Even though inflation expectations are on the radar, there are no red flags. The expectations do not change the behavior of the central banks, says Knudsen.
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Source: Nettavisen by www.nettavisen.no.
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