Is now a good time to buy a new home?
Who among us, when making New Year’s resolutions, could have guessed how turbulent the world would soon become? High inflation, rapidly rising interest rates, Russia’s brutal war of aggression in Ukraine, and the resulting European energy crisis have, according to Statistics Finland, driven consumer confidence to record lows. Yet, according to a survey published by Oikotie in early September, more than one in five Finns are still considering buying a home. How can this make sense?
Inflation can shrink your mortgage in real terms
nflation—the erosion of money’s purchasing power—means you can buy less with the same amount of money. In August, inflation was 7.6%, meaning that in one year the purchasing power of 1 € dropped to about 93 cents.
Construction costs rose 6.8% in August 2022 compared to a year earlier. Fortunately for buyers, housing prices have not increased as steeply. Hypo estimates that apartment prices in the Helsinki metropolitan area will rise by about 1.0% this year and slow to 0.5% next year.
Inflation can benefit mortgage holders through wage growth. High inflation often leads to higher wages to maintain living standards. This means debtors end up paying their loans with a smaller share of their income in real terms: a 300,000 € mortgage is still 300,000 €, but it becomes easier to service when salaries rise. Of course, this benefit disappears if wage growth falls short of the added costs caused by interest rate hikes that often follow inflation.
Interest rates rising—But still reasonable
According to the Bank of Finland, the average margin on new mortgages in July was about 0.82%. When combined with the 12-month Euribor (2.621% on 28.9.2022), which has risen steeply, the total mortgage rate comes to about 3.4%.
This may feel high after more than six years of negative Euribor, during which borrowers paid only the margin. But during the 2008 financial crisis, the 12-month Euribor reached 5.5%, and today loans are stress-tested at 6% before being granted. In practice, the current average rate on new mortgages is still below inflation—meaning real interest rates are negative, which benefits borrowers.
For homeowners looking to switch properties, the relative impact of interest rates may not change much, unless they had fixed a very long-term rate on their current loan. As always, each borrower must make careful, individual decisions.
The growing importance of energy efficiency
According to Oikotie’s survey, rising energy costs worry Finns even more than rising interest rates. After Russia cut off gas supplies to Europe, electricity prices soared, raising some households’ monthly bills by hundreds of euros. These developments are accelerating Europe’s transition toward renewable energy and efficiency.
For many families, moving from an existing home to a more energy-efficient one may now be the financially smart choice. For example, according to Motiva’s heating comparison calculator, geothermal heating uses over 40% less energy than the exhaust air heat pump common in new builds. For a 90 m² detached house, that’s about 100 € per month in savings. Compared to direct electric heating, the savings can reach nearly 70%—amounting to thousands of euros per year. The payback time for solar panels has also shortened. With energy market uncertainty continuing, the winners will be those living in A-class energy-efficient homes powered by renewables.
At Olas, we build detached homes in sought-after areas of the Helsinki metropolitan region, where property values have shown steady long-term growth. Whenever possible, we install geothermal heating and design new homes to meet the best A-class energy ratings. With these measures, we are addressing the challenges this year has brought—ensuring that buying a new home remains a safe and sustainable decision.
