Sweden's mortgage war heats up as banks race to cut rates

One of Sweden's largest mortgage providers, state-owned mortgage bank SBAB, lowered its variable mortgage rate by 0.10 percentage points and its fixed-rate mortgages by 0.10-0.25 percentage points on August 21st, the day after the Riksbank's decision to cut the policy rate.

The policy rate is the central bank’s main monetary policy tool. It decides which rates Swedish banks can deposit in and borrow money from the Riksbank, which in turn affects the banks’ own interest rates on savings, loans and mortgages.

"The Riksbank's lowering of the policy rate means that the our borrowing costs as a bank are lower, which means we can further reduce mortgage rates," SBAB's CEO Mikael Inglander said in a press release.

Swedbank quickly followed suit and cut rates on all its mortgages by 0.05-0.10 percentage points.

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Danske Bank on Tuesday lowered its variable mortgage rate by 0.20 percentage points and Nordea 0.10 percentage points.

Swedbank also cut interest rates on its savings accounts by 0.25 percentage points and 0.10 on private accounts, and SBAB cut its savings account rates by 0.25 percentage points.

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How low is the policy rate now, and how low could it get?

The policy rate currently stands at 3.5 percent, down from 3.75 percent, with the next announcement scheduled for September 25th.

If inflation continues to follow expectations, then the central bank has said that it could lower rates faster than predicted in June – two or three more times this year.

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There are announcements scheduled for September, November and December, so this means that we could potentially be in for four consecutive interest rate cuts before the end of the year.

Predictions from the bank indicate that the policy rate could dip below 3 percent this year, dropping below 2 percent in the latter half of 2025.

This doesn’t mean that interest rates on mortgages will drop below 2 percent by the end of 2025, but we can (probably) expect them to be substantially lower than they were at the end of 2023. The policy rate doesn't directly control mortgage rates, but there's an indirect effect.

The policy rate and key interest rate expectations based on market expectations