Housing loan interest rates set to rise
Trend expected to put damper on rising real estate prices
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Following recent developments in the 12-month Euro Interbank Offered Rate, or Euribor interest rate, a decision by the European Central Bank at its meeting on Thursday to raise short term interest rates is believed to be all but certain. This means that the time of record-low interest rates on Finnish housing loans is likely to be over.
The 12-month Euribor, which is the reference rate that most Finnish housing loans are linked to, has gone up by one half of a percentage point since late September. The greatest surge was in October.
Interest rates for new housing loans have risen significantly during the autumn. The increases can be in the tens of euros per month, depending on the size of the loan.
Nevertheless, borrowing money to buy a home is still cheap compared with the beginning of the decade.
Economists say that the ECB's interest rate hike has already been taken into account in the Euribor rate. However, there can be some disagreement on whether or not the current Euribor reflects one or two rate hikes.
On Monday, the 12-month Euribor was at 2.7 percent, and the European Central Bank's reference rate was two percent.
Therefore, Thursday's expected interest rate hike will not necessarily change interest rates much. Interest rate pressure will grow if the ECB gives indications of one or more rate hikes next year.
"Now there are one or two interest hikes coming. It's another story what happens later. Only then will there be reason to rethink the one-year Euribor", says Timo Lindholm, head economist at OKO Bank.
A rise in interest rates is expected to ease pressures for higher housing prices in Finland.
Banks will not admit to a housing bubble, although the prospect that housing prices may even out is seen as a good thing.
"It is not in anybody's interest for prices to keep going up for a long time. The downward correction will always be more steep", Lindholm explains.
Reijo Heiskanen, economist at Nordea Bank, does not believe in a fall in housing prices. "The reaction can be the same as it was five years ago. At that time, the rise in prices stopped for a time, when interest rates went up."
Helsingin Sanomat
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| 29.11.2005 - TODAY |
 Housing loan interest rates set to rise |
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