SBAB forecasts three consecutive interest rate hikes

The Riksbank is expected to raise the policy rate at each of the next three rate meetings. As a result, the variable mortgage interest rate could increase by 0.75 percentage points by the beginning of next year. This is according to a new forecast from SBAB.

The state-owned mortgage bank is now expecting increases of 0.25 percentage points each in November, December, and February. This would move the policy rate from the current 1.75 percent to 2.50 percent. In its previous forecast in September, the bank predicted two hikes and that the first would be delayed until December.

“It would be remarkable if inflation does not rise considerably in the coming months,” says Robert Boije, Chief Economist at SBAB, and continues:

“We have a toxic cocktail of several negative global factors, and we see no hopeful signs that things will improve in the near future—rather the opposite.”

The global crisis is driving up prices

The turnaround is due to a number of factors beyond Sweden’s borders. Hopes that the Strait of Hormuz would soon reopen have been dashed, and traffic through the Bab el-Mandeb Strait has been restricted.

German gas reserves are at historic lows ahead of winter, raising concerns about higher electricity prices in Sweden as well. Shipping costs remain sharply elevated, and global food prices continue to rise.

The Swedish krona has also weakened significantly against the dollar since spring, making imports more expensive. Meanwhile, temporary political measures have dampened inflation, but many of these are expiring soon. SBAB is also raising its assessment of the long-term equilibrium rate to 2.25 percent, a quarter percentage point higher than before.

Inflation has already started to climb. The KPIF stood at 1.5 percent in September, up from 0.7 percent in August, mainly due to higher electricity and fuel prices. The Riksbank left the policy rate unchanged in September, where it has been for a year, but signaled that increases are expected to begin this year. The next rate decision will be announced on November 4.

This is how much more expensive mortgages will get

For households, the forecast means just under 440 kronor more per month per million kronor in variable mortgages, after tax deductions. Someone who has borrowed three million can thus expect a little over 1,300 kronor more every month.

Boije believes the increase is manageable for most, but will be noticeable for households with large loans relative to their income. According to him, mortgage holders should prepare for rates between just under 3.5 percent and just over 4.0 percent depending on the fixation period, and not rule out the possibility that they could be even higher.

Variable still cheapest

Despite the increases, SBAB assesses that variable interest rates will be the lowest compared to all longer fixation periods. However, the difference from a one-year fixation is small, and the bank emphasizes that the uncertainty in the forecast is significant.

“Variable interest, given our forecast, appears to be the cheapest, but it may not be the right choice for those who dislike uncertainty and/or have little financial margin,” says Robert Boije.