Riksbank Holds Rates Amid Upbeat Economic Forecasts; Mortgage Rates and Housing Prices Poised to Rise

The Swedish central bank, Riksbank, has maintained its key interest rate at 1.75%, while revising upwards the country's economic growth forecasts for the near future. The bank now projects Sweden’s GDP to grow by 1.5% this year, up from 0.9%, and expects a stronger expansion of 2.9% in 2026, slightly above its earlier estimate of 2.7%. Growth is forecasted to stabilize at 2.5% in 2027, with a predicted recession in 2028, when GDP growth is expected to slow to 1.2%. Inflation remains expected to stay low at 0.6% next year but is projected to increase to 2.1% in 2027 and 3.2% in 2028, accompanied by anticipated interest rate hikes during those years.

Alongside these forecasts, concerns are rising over the housing market due to the recent easing of mortgage regulations under the Tidö law. Economists warn that this relaxation could push housing prices upward and increase household debt, particularly impacting young people trying to enter the market. A guest economics professor highlighted, “the real winners are those who already own a home,” as the new rules may benefit current homeowners while making it harder for new buyers.

In light of increased mortgage interest rates on longer fixed-rate loans implemented by banks recently, financial experts suggest borrowers consider locking in fixed rates if they are favorable compared to variable rates. Magnus Hjelmér from Ica Banken noted that for most of the past few years, fixed mortgage rates have undercut variable rates, though variable rates have recently risen. The Riksbank forecasts policy rates will remain unchanged until 2026, with slight increases afterward. Conversely, Nordea foresees a more robust economy and earlier interest rate hikes beginning in 2027, potentially reaching 2.5%, advising borrowers with tight financial margins to secure fixed rates promptly.

The Swedish Institute for Economic Research (KI) supports these positive economic signals, reporting broad demand growth in the third quarter and forecasting the low economic phase to dissipate by mid-2026. KI expects GDP growth to reach 2.7% in 2026 and sustain 2.3% in 2027.

The Stockholm stock exchange also reflected optimism, with the OMXS30 index up by 1.18%, paralleled by a marginal strengthening of the Swedish krona against the euro and dollar. Global markets in Asia and the U.S. further bolstered this positive outlook.

Overall, while Sweden’s economy shows signs of strengthening with a stable short-term interest rate environment, the housing sector faces pricing pressures and increased debt risk due to recent regulatory changes. Borrowers and policymakers alike are navigating the trade-offs between economic growth, inflation, and housing affordability as the nation approaches 2026.