On Thursday, central bank governor Ida Wolden Bache announced another interest rate hike. The policy rate is now at 4.25 per cent, which means a mortgage rate that is approaching 6. This is the 13th time Norges Bank has raised the interest rate since they started in 2021, we are now at the highest interest rate level since autumn 2008. In addition, Wolden Bache is now warning of another rate hike in December, before she finishes. The key interest rate will probably remain at 4.5 per cent throughout 2024. In other words, the interest rate peak will soon be reached. Gravity does not affect interest rates But even if many people feel that they have been stuck in a roller coaster, on a kind of eternal journey towards the top, it is unfortunately not the case that gravity will pull interest rates down again when the peak is reached. Because even though interest rate hikes are most likely now over, interest rates are not going down anytime soon. And the next three years will collectively mean far higher interest costs than the three years we are about to leave behind. This graph shows why the thousands will fly out of your wallet in the next few years: Policy rate in percent. The red part of the graph shows Norges Bank’s forecasts for the future. Graphics: news Policy rate in percent. The red part of the graph shows Norges Bank’s forecasts for the future. Graphic: news To take an example: If you have a mortgage of NOK 4 million, in the three years 2021–2023 you will have paid NOK 364,000 in interest on your mortgage – before tax – if you use figures from Norges Bank as a basis. Over the next three years, the same mortgage will cost you NOK 630,000, before tax. In addition, there are installments, which most people with mortgages pay. It is a sharp increase that will sting for many. Still high price growth The main reason why interest rates will now be so high for several years to come is price growth. Although inflation has come down from the most extreme levels, it is still very high. The signal from Norges Bank is not to be mistaken, they are still very concerned about the rise in prices. In particular, the bank points to the tight labor market, where it is now likely that wage costs will increase more than previously envisaged. This will help to keep price growth up going forward. The longer price inflation stays up, the greater the danger that it will bite. If it gets stuck, it will be expensive to bring it down again – in the form of several interest rate hikes and a high interest rate level for a long time. At the same time, Wolden Bache is keen to emphasize that she does not want to raise the interest rate more than is necessary. Interest calculator The calculator uses the formula for annuity loans to calculate your monthly costs. Nominal interest is used here. This means that there will be an additional transaction fee which will vary from bank to bank. Today’s interest rate is taken from DNB’s mortgage interest rate for young people, and different banks will have different interest rates. The figures given here will therefore be approximate for you. Monthly expenses are interest and repayments combined. Read more about sources and reservations here. See how much you have to pay if the interest rate increases. Most can withstand it According to Norges Bank, “most” households have the finances to withstand the increased interest expenses. Among other things, the vast majority will benefit from increased wage growth going forward, which will make the economic situation a little more livable. Nevertheless, many people will have to tighten their consumption when interest expenses eat up an increasingly large part of their income. Many probably already feel that they have run out of ways to reduce their expenses. Until now, many have eaten away at the money they saved through the pandemic. The buffer is about to run out. The banks are now reporting a marked increase in applications for interest-free loans, which means that you only pay the costs of having a loan – and postpone the repayment of the loan itself. However, it is intended as a temporary solution. It is a bit frightening when we know that the next few years will be even more expensive for mortgage customers.
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