Swedish central bank cuts key interest rate for first time in eight years, lowering inflation but raising concerns for renters

In May, the Swedish central bank, Riksbank, cut its key interest rate for the first time in eight years, leading to a drop in inflation since the beginning of the year. This is positive news for households with variable rate mortgages, but not for those living in rental properties.

Normally, rents increase year on year regardless of interest rate cuts or inflation rates, according to consumer advisor Maria Wiezell. Rising costs for electricity, water, heating, maintenance, and loan interest rates have led to significant cost increases for landlords in recent years, while rents have also risen. However, rental income has not kept pace with these increases.

The disparity has been absorbed by landlords, but this is not a sustainable cost distribution if we want to maintain a large number of well-maintained rental properties, says Tomas Ernhagen, chief economist at Fastighetsägarna, a Swedish property owners association.

Last year, private landlords in Stockholm demanded a 12% rent increase, which eventually settled at 5.8%. This increase was justified by the interest rate situation and high inflation. Earlier this week, Fastighetsägarna Stockholm demanded a 15% rent increase for next year.

“There are significant cost increases on all fronts. Just because inflation is now decreasing does not mean that costs are falling,” says Tomas Ernhagen. Many large housing companies increased their profit margins last decade. However, profitability has been halved due to the sharp rise in interest rates in recent years.

Despite costs for utilities like electricity and heating becoming cheaper, Maria Wiezell predicts that rents will continue to rise by a few percent per year for a long time. “We went from very high electricity costs to much lower electricity costs. This has not affected rents, they have continued to rise,” says Maria Wiezell.