Banks expect mortgage rates to rise because of bank tax

Iceland’s commercial banks expect interest rates and lending margins on mortgages to rise over the next six months, partly because of a planned increase in the bank tax, mbl.is reports. The forecast comes from a new lending survey by the Central Bank of Iceland covering the country’s four commercial banks.

The banks expect rates to rise on both inflation-indexed and non-indexed mortgages. These are projections of future lending terms, not announcements of rate changes. The survey was conducted from October 1 to 14, and its results are based on the average of the banks’ responses.

Interest rates and margins on inflation-indexed household loans were unchanged over the past three months. The banks expect both to increase over the next six months, citing the planned bank tax increase and their expectation that inflation will fall faster than the Central Bank’s policy rate.

Rates on non-indexed household loans rose over the past three months as the policy rate increased, while lending margins edged down. The banks expect a slight rise in both rates and margins on non-indexed mortgages over the next six months, partly because of the anticipated increase in the bank tax.

Demand for housing loans from households declined slightly over the past three months, but the banks expect it to increase over the next six months. They also foresee a slight increase in the supply of housing loans, with no changes to household lending rules.

Demand for long-term loans from businesses fell slightly, and the banks expect overall business demand for credit to continue declining. They also expect the bank tax to push up rates and margins on some business loans, including non-indexed loans to smaller companies and loans in foreign currencies.