“The situation has been quite favorable in recent years from the perspective of mortgage borrowers. Euribor rates have been in the negative range, which has basically meant that the base rate has been zero in most loan agreements. Mortgage borrowers have practically only paid margins, “he explained to the newspaper.
The interest rate on a mortgage consists of a reference rate and a margin charged by the lender. Mortgage margins usually vary from borrower to borrower and, according to the Bank of Finland, averaged 0.75 per cent at the end of 2021.
However, some signs of a turnaround have emerged. Finland’s most popular reference rate for mortgages, the 12-month Euribor, has risen significantly since Friday.
Economists have urged borrowers to prepare for rising interest rates in the coming years. Although expectations remain cautious, even a small increase in the reference rate can have a large impact on the borrower’s financial position.
“Especially when it comes to larger mortgages with long repayment periods, even a small increase in interest rates is significant.” Kirsi VälimäkiOP Financial Group’s head of unit, told Helsingin Sanomat.
“The rise in interest rates seems to be closer than before due to accelerating inflation,” he said.
Olli RehnGovernor of the Bank of Finland on Friday stated Helsingin Sanomat that the European Central Bank (ECB) will raise its key interest rate next year at the latest. Klaas Knot, Governor of the Bank of the Netherlands, on Sunday said Reuters says he expects a 0.25 percentage point increase as early as the fourth quarter of 2022.
The statements have already revived the direction of expectations in Finland.
Kuoppamäki told Helsingin Sanomat that Danske Bank has therefore revised its expectations of an increase in the ECB’s interest rates. “We think the first increase is expected by the end of this year,” he said.
Juho KostiainenNordea’s economist estimates that the 12-month Euribor rate could rise above zero by the end of this year. – According to market expectations, the interest rate rose to 0.8 percent by the end of next year, he said.
The interest rate closed at -0.31 percent on Monday, February 7, 2016, remaining below zero since February 2016.
Kostiainen added that households should be prepared for interest rates of up to two or three percent, especially if inflation continues to accelerate. Kuoppamäki doubted that interest rates could rise as high this year or next, but he did not rule out the possibility in the slightly longer term.
“If we’re talking about a five-year outlook, it’s probably a completely realistic idea that interest rates could rise to that level,” he said.
Aleksi Teivainen – HT
Source: The Nordic Page