Interest rates | Mortgage interest rates have risen rapidly in Finland and are also high

Home loans interest rates have risen faster in Finland than in the rest of the euro area, and interest rates are also high compared to the rest of the euro area.

For several years, Finnish mortgage borrowers enjoyed the lowest mortgage interest rates in the euro area, but the rapid rise in interest rates has changed the situation.

Economist at the Bank of Finland Antti Hirvonen writes on the central bank's Euro & economy website in the latest on the blogthat the average interest rate for new home loans has risen above the euro area average in Finland due to the rise in interest rates in recent years.

In Finland, interest rates on new mortgages have risen the most in the euro area in two years, i.e. by 3.91 percentage points between November 2021 and November last year.

Next, interest rates have risen the most in the Baltic countries, where the interest rate increase was 3.77–3.85 percentage points during the review period. In the large euro countries, Germany and France, the increase in interest rates was closer to the average increase in the euro area, i.e. 2.83 percentage points, Hirvonen writes.

In November of last year, the highest average interest rates for new mortgages in the euro area were in the Baltic countries, where average interest rates hovered around six percent. Finland's average interest rate last November was 4.65 percent, i.e. the fourth highest in the euro area.

In November, the average interest rate on new mortgages in six countries was 4.13 percent lower than the euro area average. The lowest average mortgage interest rate was in Malta, where the average interest rate was less than two percent.

Finland According to data collected by the bank, Finnish mortgage borrowers now pay an average higher interest rate than elsewhere in the euro area.

Last November, the average interest rate on housing loan stock in Finland was the sixth highest among euro countries, i.e. 4.04 percent. The interest rate on the mortgage loan base describes the situation of the average mortgage borrower better than the interest rate on new mortgage contracts.

The average interest rate on the loan portfolio was higher than in Finland in the Baltic countries, Portugal and Cyprus. The average interest rate in Finland is higher than in Sweden and Denmark, which are the same type of economy as Finland.

In France and Germany and two other countries, the average interest rate on the mortgage portfolio was 2.4 percent lower than the average interest rate of the entire euro area.

According to Hirvonen, the low average interest rate in the entire euro area can be explained by the low interest rates of the euro countries with large housing loan portfolios, i.e. Germany and France, because these countries account for more than half of the euro countries' housing loan portfolio.

Interest rate in Finland, the changes are transmitted to mortgages faster than in the euro area, because here market interest rates are used as reference interest rates for mortgages.

In Finland, the typical mortgage reference interest rate is the 12-month Euribor, in which case the mortgage interest rate is revised every year.

“However, such frequent interest rate checks are not common in the euro area, but fixed interest rates are often used for mortgages. In fixed-rate mortgages, the interest rate is often fixed for more than 10 years, and at the longest, the interest rate can stay the same even for the entire loan period,” Hirvonen of Suomen Pankin writes in a blog.

Before the current phase of rising interest rates, the average interest rate on the housing loan stock in Finland remained clearly lower than the euro area average.

The average interest rate on the housing loan portfolio in the years 2003–2023 in Finland has averaged 2.28 percent, while the corresponding interest rate in the euro area has been 3.42 percent.

“Despite the recent rise in interest rates, Finnish mortgage borrowers have paid on average significantly lower interest rates than in the euro area during the euro period,” Hirvonen writes.