Mortgages – interest rate trends and forecasts

In June 2024, the Swiss National Bank (SNB) decided at its monetary policy assessment to lower the key interest rate by another 0.25%. The SNB key interest rate now stands at 1.25%.

Underlying inflationary pressure has continued to decline compared with the first quarter of 2024. The current reduction in the SNB’s key interest rate will enable the SNB to conduct monetary policy appropriately. The SNB will continue to closely monitor inflation developments and adjust monetary policy as necessary to ensure that medium-term inflation remains within the price stability range, as stated in the corresponding media release.

The period of historically low interest rates in Switzerland lasted from autumn 2010 to autumn 2022. Part of this period (from summer 2014 to autumn 2020) will even go down in history as a period of negative interest rates. From the end of 2021, mortgage interest rates rose gradually and, in some cases, rapidly for around 20 months. Since 2023, a cycle of interest rate cuts has been observed once again.

When considering the recent rise in interest rates and feeling somewhat gloomy about it, two aspects should not be forgotten. On the one hand, Switzerland experienced a period of several years in the 1990s when mortgage interest rates were 7%. On the other hand, mortgage lenders still calculate affordability using a notional mortgage interest rate of 4 to 5% (and thus base their approval or rejection of a mortgage on values that are more than twice as high as the actual current mortgage interest rates).

Seen in a very long-term context, mortgage interest rates can still be considered relatively favourable, even though we are now quite a way off the absolute lows.

Daten per Juli 2024

In a normal market environment, it can be observed that the interest rate for fixed-rate mortgages rises as the term increases.

The longer you lock in the interest rate for your fixed-rate mortgage, the more certainty and security you have in your budget planning. This security comes at a price in the form of higher interest rates. Currently, there is no such surcharge in the short-term segment; a 5-year fixed-rate mortgage is available at the same interest rate as a 2-year fixed-rate mortgage. In the medium to long-term segment, the surcharge per term year is currently 5 basis points or 0.05%. Both clearly illustrate the current ‘flat yield curve’. Across the entire spectrum, from 2 years to 10 years, the average premium per year of the term is 0.025% or 2.5 basis points, which is a very moderate surcharge. It is therefore hardly any more expensive to fix interest rates for longer than for shorter terms. Talk to your mortgage advisor about this. 

There are a number of factors that influence mortgage interest rates. The effects are never constant, and the weighting of the individual factors also changes constantly.

The statements made in the following list do not claim to do justice to every macroeconomic theory. They are greatly simplified and are intended to provide mortgage borrowers with practical guidance.

Here is an example:
IRS 10 years: 1.00%
Bank margin: 1.10%
Interest rate for mortgage borrowers: 2.10%

A swap is essentially an exchange of future cash flows. This video explains exactly how it works.

Interest rate development for Saron mortgages

Short-term mortgage interest rates tend to be based on the SNB’s monetary policy and key interest rate. 

The basis for calculating the interest on a Saron mortgage is the Saron. This is fixed and published daily by SIX, the Swiss stock exchange. The Saron is effectively a reflection of the SNB key interest rate. This, in turn, is reviewed continuously by the SNB and adjusted at least quarterly (as part of its monetary policy assessments).

The slight difference (usually a few basis points) between the SNB key interest rate and the Saron reflects market expectations regarding future interest rate moves by the SNB. If the Saron is below the SNB key interest rate, the market consensus expects the SNB to cut rates in the coming months.

Interest rate trends for fixed-rate mortgages

Longer-term mortgage interest rates, on the other hand, are linked to the capital market. A 10-year fixed-rate mortgage, for example, runs more or less in step with the yield on 10-year Swiss government bonds (federal bonds).

Quelle:  finews.ch

To avoid being caught off guard, it is advisable to keep an eye on mortgage interest rate developments even if you have a long-term fixed-rate mortgage. A regular review every two to three years seems appropriate.

With regard to mortgage renewal or redemption, you should make initial enquiries and speak to a specialist 12–18 months before the due date. Please feel free to contact us for this purpose.

For the Saron mortgage, a further slight decline of around 0.25% is expected for the rest of 2024. This is against the backdrop of the expected interest rate cut by the SNB in September 2024. Short- and medium-term fixed-rate mortgages are likely to trend sideways in the coming months, while 10-year fixed-rate mortgages are likely to experience slight upward pressure.

Since it is impossible to predict the future, it is advisable to keep an eye on developments and to consult a mortgage specialist so that you can find the most attractive offer for you in any interest rate situation.