The days of zero and sub-zero mortgage interest rates will likely be over sooner than expected, according to Nordea Bank.
Finland’s home loan interest rates – which are tied to 12-month Euribor rates that have been below zero since the start of 2017 – are likely to rise next spring, according to branch private banking economist Olli Kärkkäinen. Finnish company of Nordea Bank.
“The European Central Bank is expected to raise interest rates by the end of next year, but this [change] will be proactively reflected in mortgage interest rates [in Finland]“, said Kärkkäinen.
According to the economist, a 1% increase in the interest rate of a 120,000 euro home loan would lead to monthly increases in mortgage payments of around 50 euros, while a 2% increase would cost homeowners more than 100 euros extra per month.
Nordea said a rise in Euribor interest rates would affect Finnish borrowers faster than in many other European countries. In Finland, more than 90% of mortgage loans are linked to Euribor adjustable interest rates.
Time for household budget checks
Kärkkäinen said now is the time for mortgage holders to check their budgets to deal with the likelihood of rising interest rates.
According to the bank, the housing market in Finland has been weaker than expected. Kärkkäinen said that in terms of home sales, the past year has been an unexpected disappointment, particularly in light of generally good economic indicators like improving employment and purchasing power and levels generally positive consumer confidence.
He said the housing market has not seen significant improvement since the summer, when the sector saw disappointing sales.