September 28, 2022

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The market is pricing a sharp rise in interest rates — which means mortgage rates are at five percent next summer.

The market is pricing a sharp rise in interest rates — which means mortgage rates are at five percent next summer.

The Nippur money market rate, with a three-month maturity, rose this week to 2.57 percent – the highest level since 2012. In May, that interest rate was 1.22 percent, and last summer it fell to 0.19 percent.

Nippur is the reference interest rate which is crucial to the high interest rates on mortgages that mortgage clients have to pay in Norway.

Interest rate broker Thomas Nordvang at Sparebank 1 Nord-Norge says stocks in the interest rate market are pointing higher, and that the market is now rates the interest rate at 3.93 per cent in March of next year, before dropping to four per cent. cent in the spring. According to Nordvang, this means a mortgage interest rate of more than five percent for customers.

When the bank gives you a mortgage, it finances a large part of this in the Norwegian money market, with Nibor being the standard interest rate. Because of this, the Nibor money market interest rate is crucial to the bank’s costs of lending money, and again the mortgage interest rate they can offer.

Today, the normal interest rate on a mortgage is around 3.0 percent, which depends to some extent on security and banking connectivity.

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strict pricing

But there is still hope for nervous borrowers.

Many probably think pricing in the interest rate market is too aggressive, says Nordfang.

At the same time, he recalls, many economists said the same about the Niebuhr rate this spring, before the Norges Bank raised its interest rate on May 1 by 0.5 per cent and proved the market right.

But Nordfang points out that the estimation of the home interest rate next summer is based on pure market monitoring, and that the market does not always predict the future correctly.

Nordvang points out that Norges Bank has many considerations when setting the policy rate, not only the Nibor rate, but also factors such as consumption, wage growth, price increases, house prices and unemployment.

On Thursday last week, the Norges Bank raised its key interest rate by another 0.5 percentage point to 1.75 percent. It’s been more than a decade since the interest rate was last so high, and Norges has indicated that the key rate could rise to more than three percent after the summer of 2023.

The interest rate must rise to reduce consumption, stave off inflation and relieve pressure on the economy. But Nordfang points out that the central bank must balance this so that the economy does not come to a sudden stop, and that consumption trends in the coming year will be especially crucial.

– A higher than normal rate of interest is now expected. Once the Bank of Norway is satisfied with the effects of the rate hike, Nordvang says, interest rates will be lowered again.

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It is believed that the interest rate peak will reach next summer, before a cautious rate cut can be expected and controlled again.

DNB does not agree with Norges

DNB Markets’ number-checkers are also more optimistic, at least if you look at it from the point of view of mortgage clients. Norway’s largest bank believes that the Norges Bank’s key interest rate will peak at 2.75 per cent, before being lowered at the end of next year to 2 per cent.

We believe interest rates will stop before the Norges Bank estimates due to weak consumption. The Bank of Norway is going to be as cold as there is and there will be a sustained rise in unemployment, so that the interest rate will eventually be lowered, but not to the levels we’ve had so far, DNB Markets chief economist Kjersti Haugland tells DN.

DNB Markets expects Norges Bank to raise rates again by 0.5 percentage point in September, and by another 0.25 percentage point in November and December, raising the rate to 2.75 percent.(Conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases using the links that lead directly to our pages. All or part of the Content may not be copied or otherwise used with written permission or as permitted by law. For additional terms look here.