September 19, 2021

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- Don't set it to beat the market - E24

– Don’t set it to beat the market – E24

In a little while, Norges Bank will likely raise interest rates for the first time in two years. Banks now think more people will peg the interest rate, even though it rarely pays off.

Interest rate: Although it hasn’t paid off over time to peg the interest rate, it can be a great way to gain predictability before the interest rate hike comes along. That is the opinion of Austin Schmidt at Danske Bank and Inger Lise Blyverket of the Consumer Council.

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The Bank of Norway announced that interest rates will be raised in September. In addition, there are plans to raise interest rates further in the coming year.

Many expected a record low zero interest rate after the central bank made crisis cuts by a total of 1.5 percentage points during the early months of the pandemic.

A recent survey showed that banks now expect an increase in demand for fixed-rate mortgages.

Austin Schmidt, director of press at Danske Bank, says the number of inquiries from clients interested in fixed-rate loans has been relatively limited as interest rates have fallen over the past year.

– However, this picture has changed recently, possibly due to indications from Norges Bank that interest rates may rise in the coming months, he tells E24.

– Our Customer Center is now registering a growing interest and curiosity from customers who are wondering if fixed rate loans are best for them.

Rush after previous rate hikes

Schmidt recalls that around the fall of 2018 and spring of 2019, when Norges raised interest rates several times, the bank encountered something similar.

Then we saw very little rush of clients who wanted advice on fixed rates. The pressure and pressure was greater in the hours and days that followed the central bank governor’s rise to the platform to adjust the interest rate, he says.

At Danske Bank, the proportion of private clients with fixed-rate loans has been 10-13 percent in recent years, which is somewhat higher than other banks. Schmidt explains this by consciously investing in fixed rate loans over time, and it’s not something they recommend to everyone.

Fixed-rate loans can provide more predictability regarding the cost of the loan, but as a rule, you should probably never choose this because you expect to “beat” the market, he says.

In Norway, the share of fixed rate mortgages is about seven per cent, and therefore we are distinguished around the world by an unusually high degree of floating interest rates.

Read on E24 +

How to get the best mortgage rate

normalization of interest rates

An advantage of a fixed rate mortgage is that you avoid increasing interest costs during the period you agree with the bank, and the mortgage interest rate remains fixed, regardless of whether the prime rate goes up or down.

At the same time, fixed-rate loans have special conditions that make them less flexible than floating-rate loans, and this, among other things, can entail costs if the loan is terminated during the holding period.

Long fixed interest rates are an expression of expectations about the future interest rate level and the borrowing costs of banks for the period.

– Should one now expect the fixed interest rates to also increase in line with the increases from the Norges Bank?

There has been a traditional correlation between the interest rate level at Norges Bank and fixed interest rates. At the same time, these are not the only parameters we look at when setting our interest rates. Schmidt says competition in the market is also important to us.

In Norges Bank’s latest forecast since June, it is estimated that the mortgage rate will rise from an average of 1.84 percent this summer to 2.98 percent at the end of 2024. However, there is an unusually high degree of uncertainty about the outlook in light of the development epidemic.

By comparison, the best banks now offer peg rates over the next three years at just under 2 percent, According to the finance portal.

There you can also see that the difference between the current variable interest rate and the fixed interest rate (three years) is currently more than 0.6 percentage points.

Consumer Council Chairman, Inger Lise Bleiverkett.

We must prepare for an increase in interest rates

Consumer Council Director Enger Liz Bleiferkett believes that the most important thing now is for consumers to prepare for an increase in the interest rate level.

There is no one-size-fits-all advice, but those who see it will have problems when the interest rate level normalizes after the very low interest rate we got over time should consider the interest rate peg, she says. to E24.

Blyverket points out, however, that a floating rate of interest has historically been the most reasonable, but that the choice must be made on the basis of an individual’s financial resources and the type of interest rate an individual can afford.

She thinks it might be smart to ask the bank for fixed and floating rate quotes.

– But no matter what offer you get, you should check with other banks, and then it is easier to use Financial Portal which we manage.

Blyverket assures that you can always negotiate with the bank about the mortgage interest rate, and that there are several thousand kroner in the difference between the more expensive and cheaper fixed rates the bank is now offering.

She also has a tip for those who find it difficult to negotiate: – Contact your bank and ask them to match the best offer you will find in the financing portal.

Eric Kevia Hansen, Director of Retail at Sandnes Sparebank.

It is impossible to beat the market

Erik Kvia Hansen, director of retail market at Sandnes Sparebank, says it was usual to have questions about fixed rates when rates were raised during the fall, after a long period of low interest rates.

– We haven’t had any rush yet, but we know it’s likely to come when the rate meeting approaches, he tells E24.

He also mentions that there are signs of a return to optimism.

A higher interest rate is actually a positive sign for the economy, because it means we are on our way back to normal.

Interest rates usually rise in line with lower unemployment and higher wage growth, which usually facilitates loan service.

Hansen asserts that one should choose a fixed rate of interest because of predictability and not because of speculation.

Historically, choosing a fixed rate over a floating rate has rarely been cost-effective. It is almost impossible to time and beat the market.

Director of Communications Vibeki Hansen Lewin at DNB.

Read on E24 +

The different country Norway: That’s why we want to raise interest rates first

Surprisingly low interest

Nordea Head of Communications Synne Ekrem thinks fixed interest rates are surprisingly low given the rate hike announced by Norges Bank.

Our experience is that clients only wake up and act when they receive the first message about an interest increase on their loan, she says.

At DNB, too, demand is at normal levels, says Director of Communications Vibeki Hansen Lewin at DNB.

– We’re not currently seeing any increased demand for fixed interest rates, she says, adding that the variable mortgage rate is historically low.

Figures from Statistics Norway show that the floating mortgage rate averaged 1.78 percent in June, while the fixed rate is 2.56 percent. The fixed rate on new mortgages fell in June, after a seven-month high.

Both DNB and Sandnes Sparebank cut their fixed rates this week.

Read also

Banks expect demand for fixed rate loans to increase before the interest rate jumps

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