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Living in Finland? This is how much living expenses could increase

You don’t need to read the news to have noticed that living expenses have increased in Finland. The price of everything seems to be going up and I’m sure you’ve started to feel it in your wallet already. However, it could be that the worst is still ahead of us, as living expenses could increase even more, as not all of the expenses have materialized yet. In this article, we’ll examine how much living expenses could rise in the next year, when we take all of the “hidden expenses” also into consideration.

The exact impact on a monthly budget will, of course, depend on many factors, such as what part of Finland you live in, what you eat and how many mouths you need to feed. So in this article, I’ll need to make some assumptions on lifestyle. However, regardless of your life-situation, this article will help you understand the pain ahead.

Trying to estimate future living costs

The truth is, nobody knows for sure where prices will be in one year. However, in this article I try to use the best estimates available to build a picture on the increase in living expenses that could be ahead of us. More specifically, I’ll bring together estimates made by banks, government officials and experts from various fields. However, keep in mind that this is only one scenario of where prices may go. In one years time, things could be worse, or they could be better. No one knows for sure. My aim is only to help you consider different possibilities so that you can prepare, if you see the need to.

Before we can calculate how much rising costs may effect someone, we need to decide on some boundaries. In this article, I’ve chosen to examine the change in expenses for the following exemplary household:

  • Family of 4, eating a healthy diet
  • Living in 75m2 apartment in Helsinki (central heating)
  • Mortgage: 250 000€ (25 year payment period)
  • Drive 15 000km/y

At the end of the article, I’ve also made calculations for a couple and a single person, using the same logic as used for the example household.

Interest rates have been rising rapidly

Up until 4/2022, the Euribor 12 month loan rate was below zero, meaning that home buyers only needed to pay a bank margin (around 0.6-0.8%) on their mortgages. However, since the start of this year, the Euribor 12 month increased rapidly, currently sitting at around 1.9% (9/2022).  Of course, no one knows where the rate will go in the future, but representatives from several banks, such as Nordea and OP  are expecting the Euribor 12 month rate to climb to around 2% by the end of this year and possibly even higher by the end of next year.

So, if we assume that bank margins stay at current levels and that the Euribor climbs to 2%, that will mean an additional 240€/month on interest payments.

These expenses have not yet materialized for everyone with a home loan, as the interest rate is checked once a year. So, if you have a home loan and want to see how various interest rates may effect your own home loan, you can use a calculator made by YLE.

Increases in maintenance fees will be seen next summer

The Minister of Economic Affairs, Mika Lintilä, recently announced that the price of central heating could increase up to 40-60% in Finland. Central heating makes up around 30-35% of the maintenance fees collected by a building complex. Typically these fees have been around 4€/m2, so for a 75m2 apartment, the monthly maintenance fee has been around 300€/month. Out of that, around 100€/month comes from central heating (300€ x 33%). This means that central heating could be mean an additional cost of 40-60€ per month.

Other market analysts have estimated that the maintenance fees could increase around 20%, so somewhat lower than the 33% estimate used in these calculations. However, as there is still a lot of uncertainly where the price of energy will go, we’ll stick to the more dramatic estimate made by Lintilä. I don’t think this is being over pessimistic, because especially if other than energy costs also start to rise, maintanance fees could jump. So let’s say that

The maintenance fee will increase by around 50€ by next summer for the exemplary family

In many cases, this price increase may not materialize until the next shareholders meeting in Spring 2023, in which the building complex will need to examine its income vs. expenses for the following year. In the meantime, the increase in costs may be covered by savings of the building complex. But even if the money is not currently coming out of your pocket, don’t be fooled. At the end of the day, it is the shareholders of the building complex that pay the increase in costs.

Increase in living expenses is already seen in food prices

People eat very differently, meaning that people also spend very different amounts on food. Also, food consumption habits tend to change when prices increase. However, for the sake of this thought exercise, let’s assume that our example family will continue to eat a healthy, nutritious diet.

A recent study from the University of Turku calculated that in order for a four person family to eat a healthy diet in Finland, their monthly expenses on food would be around 889€ (prices from 2021). Though the study was interesting, the findings were already outdated when published a few months ago, as food prices have already seen a significant increase in prices. On Average, prices have increased 10% (YLE), with some food items up over 40% since the start of the year.

However, things could be getting worse. Minister Kurvinen recently stated that food prices can increase up to 20%. Many experts agree.

Even if we assume that prices increase by “only” 15%, that would mean an additional 135€/month on food, for a family of four, wishing to eat a healthy diet.

Rise in gasoline prices will be an additional burden

In Finland, the average car owner drives around 15 000km a year. In 2020, LähiTapiola consulted a group of experts to calculate the expenses of driving for the average Finn. Their analysis, which was reported by Kauppalehti, concluded that the average Finn (who tends to drive an old car), uses around 110€/month on gas, using 2020 prices. Back then, the price of gasoline was around 1.5€/l (YLE), while at the moment of writing, it is around 2 €/l. That is an increase of around 30%. In other words,

unless the driver starts reducing their driving, they will be paying around 30€/month more to fill up their car.

Rise in electricity prices..a nail to the coffin?

Percentage wise, electricity bills have increased dramatically in the past six months. This has been devastating for those living in detached homes with electric heating. However, for those living in apartment buildings, this isn’t the biggest inflationary problem, as heating is typically done through central heating. Even so, a four fold increase in the price of electricity does start to have some impact.

Electricity companies estimate that a family of four, living in a 75m2 apartment, use around 2 250 kWh a year.  In 2020 electricity with a fixed term (24 month) contract cost around 7c/kWh, while now it is over 30 c/kWh. Using these figures,

the electricity bill of the exemplary household will increase over 40€/month.

Summary: The increase in living expenses will be much greater than many expect

A year from now, the monthly living expenses for a family of four could be over 500€ more than at the start of this year. On an annual bases, that translates to over 6000€ of additional expenses, only from the “necessities”. Of course, the actual number will vary from family to family and will be dependant on factors, such as diet, size of home and size of mortgage (if any). That said, everyone will feel the pain, more or less. As the table below shows, even couples and singles will see a big increase in their living expenses. Needless to say, those with low wages will be hurt the most, while those who are well off, should be able to manage the increase in living costs, unless they’ve taken up a a lifestyle too extravagant compared to their wages.
The good news is, that is inflation does not persist for many years, wages could slowly start catching up to inflation, easing the financial burden or higher living costs. However, until then, we all need to accept the fact that for most of us, living standards will decrease in the next year or two ahead.

Table 1. Increase in living expenses for three different households

increase in living expenses Finland

Could this increase in living expenses be avoided?

I am not expecting a resolution to the war in Ukraine any time soon, so the decrease in energy prices would need to come from somewhere else. In essence, this would need to come from a reduction in energy demand. Usually when the price of energy goes up high enough, demand decreases because people decide to drive less and some factories may need to shut down. However, even this option may not help as much as we may hope, as Saudi Arabia, the worlds biggest oil exporter, has hinted that it may reduce oil output if prices fall. After all, they can make the same amount of money by selling less oil for a higher price, than they would make by selling more oil for a lower price. Unless other oil and gas exporters are able to dramatically increase their output (which doesn’t seem likely), price destruction may not work as some anticipate.

Another option is to expand the production green energy and nuclear energy, but this is not a short-term fix. In the short term, governments may give subsidies to help households temporarily, but most economists would agree that subsidies could, in fact, increase inflation even further, as people would not be incentivized to reduce consumption.

Personally, I don’t see an easy way out. We should really hope for a mild winter and abundant rainfall in countries such as Norway, that produce a lot of hydroelectricity. Of course, there may also be options that I am not aware of, but based on my current understanding, I think it’s better to plan for the worst, rather than hope the problems disappear on their own.

So how could you prepare for the future?

As the saying goes, by failing to prepare, you are preparing to fail. So even if we cannot know for sure what the energy will look like, at this point in time it is prudent to prepare for a variety of different scenarios that may be ahead of us. One of the potential scenarios is the one I have outlined above.

If the above scenario plays out, the exact way to prepare depends on a variety of different factors, such as your current living arrangements and your current living expenses compare to your income. If you are living on rent, you’ll want to mentally prepare for a big increase in your rent (up to 10%). Simultaneously, you’ll want to prepare for your savings to diminish in purchasing power and understand when may be a good time to buy a home, rather than continue on rent. If you already own a home, you’ll want to build a strong financial buffer to prepare for winter. More importantly, you want to understand how different scenarios may impact the value of your home and in what type of situations (if any), may selling your home come to question.

Things are currently quite tricky and really need to be examined case by case. One the one hand, inflation tends to increase home prices in the long term. On the other hand, recessions (which seems to be looming ahead) tends to have the opposite effect on home prices. Many experts think that we will see stagflation, which means that we’ll see inflation and an economic slowdown simultaneously. In other words, these opposing forces could effect the housing market together. The relative strength of each opposing force will determine what will happen to home prices in the next years. If you are interested in hearing my take on how things may play out, join my free webinar on buying a home in challenging times.

In the webinar, I will give my view on what I see happening in the markets right now. My hope is that by sharing my views, I can help you in your own thought process on how to navigate the Finnish housing market now and in the future. You can read more about the webinar and sign up from this link.

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Finland,increase in living expenses,inflation
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