State-owned lender SBAB said on Wednesday it expects the Riksbank to lift its policy rate three times before February, a shift that would push variable mortgage rates up by a combined 0.75 percentage points, Bostadspolitik reports.
The bank's chief economist, Robert Boije, said the revision rests on an anticipated rise in inflation. SBAB has raised both its near-term rate forecast and its estimate of the long-run equilibrium rate.
Why it matters
The forecast matters for Swedish households carrying large mortgages, most of which are tied to variable rates. According to Bostadspolitik, SBAB calculates that the projected increase would cost roughly 440 kronor a month after interest deductions for every million kronor borrowed.
Boije said most borrowers can absorb that, but households whose loans are large relative to their income will feel it more sharply.
The revision also signals that the period of falling or stable rates may be over. SBAB now assumes the equilibrium policy rate — the level at which the economy is in balance and inflation holds steady at 2 percent — sits at 2.25 percent, a quarter-point above its earlier assumption. That higher anchor feeds directly into the bank's view of mortgage costs ahead.
A "toxic cocktail" of price pressures
Swedish inflation has so far withstood high fuel prices better than expected, and demand in the economy has picked up. But according to SBAB, temporary political measures have partly concealed underlying price pressure, and those measures are due to expire soon.
Boije also noted that higher oil prices typically feed through with a lag of several months. On top of that, he pointed to historically low German gas storage, rising natural gas prices, elevated global freight and food costs, constrained traffic on key transport routes, and a krona that has weakened against both the dollar and the euro.
"It would be remarkable if inflation did not rise markedly in the coming months," Boije said, describing what he called a toxic mix of negative external factors with no encouraging signs of improvement in the near term — rather the opposite.
November, December and February
SBAB now expects the Riksbank to move in November, December and February. Boije said the bank had wavered between a first hike in November or December, alongside one in February, but has returned to November in this forecast and added a third increase.
He attributed the November move mainly to the improved economic outlook, with the two later hikes driven by expected inflation. Acting early, he said, reduces the risk that the Riksbank has to raise rates far more aggressively later.
For borrowers, Boije said he hopes SBAB's forecast of a substantial rise in inflation, the policy rate and variable mortgage rates proves wrong. He advised mortgage holders to prepare for rates in a range from just under 3.5 percent to a little over 4.0 percent depending on fixation period, without ruling out somewhat higher levels.
Variable rates still seen as cheapest
Even with the expected increases, SBAB judges variable rates to be the cheapest option compared with longer fixation periods, though the gap to a one-year fixed rate is small.
Boije said the choice of fixation period is far from obvious. A variable rate looks cheapest on SBAB's forecast, he said, but may not suit borrowers who dislike uncertainty or run tight budgets. He also stressed that global developments, and therefore the forecast itself, remain uncertain.
The next signal will come with the Riksbank's upcoming rate decisions, starting in November.
