A Dane, a Norwegian and a Swede went to the bank in their respective countries to take out a home loan during a period characterized by low interest rates. What happened when interest rates started to rise? Kjetil Olsen, chief economist at Nordea in Norway, has investigated the issue and concluded that the Swede is by far the most interest-sensitive borrower. Danes don’t have to worry too much because most people have annuity loans with a fixed interest rate for 30 years. Extremely sensitive to interest rates The majority of Norwegians also have 30-year annuity loans, but unlike Denmark, the vast majority have variable interest rates. The annuity principle is that you pay the same total fee each month for interest and amortization together. If the interest rate goes up, you pay less in amortization. If the interest rate goes down, you pay more in amortization. In Sweden, the standard is straight amortization, so-called serial loans, with variable interest or fixed interest for a shorter period of time. When interest rates rise, the consequence is that the entire interest rate shock is transferred directly into borrowers’ wallets, according to Olsen. Norwegians are still quite sensitive to interest rates, but Swedes are extremely sensitive to interest rates because they have serial loans. The respective mortgage systems have had a direct impact on the countries’ economic growth, data that Olsen produced shows. Sweden’s growth has been worse than both Denmark’s and Norway’s. “Very good system” An indication of this is that Swedes spent significantly less than both Norwegians and Danes on services. Norway is far above the level we had before the pandemic. In Sweden, you are below. In Norway, people have been so disappointed that interest rates have gone up, but they don’t understand how bad it can actually be, says Olsen, referring to Sweden. But the positive news is that Sweden will get a pretty good “boost” when the Riksbank lowers the interest rate. I would guess that 2025 will be better. Denmark also has a unique system – but in a positive sense, according to Helge Pedersen, chief economist at Nordea in Denmark. Homeowners with bond-financed mortgages can convert their loans at any time, which basically means they can sell their debt and renegotiate the interest rate. It’s a very good system that you can use privately, says Pedersen.
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