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For more than a decade, individuals and businesses have been able to obtain mortgages and loans at virtually no cost. Mortgage interest rates below one percent prompted real estate buyers to buy a slightly larger apartment immediately. Cheap money also kept companies alive, which actually earned little and had long disappeared from the scene in the absence of negative interest rates. The consequences are well known: Rising interest rates triggered a wave of bankruptcies in the Swiss corporate environment. And more and more households are complaining about the increasing mortgage burden.
Therefore, many hope that the Swiss National Bank (SNB) will lower the main interest rate again and money will become cheaper again. But the SNB will only do so when it thinks the fight against inflation is over. In its latest outlook, UBS forecasts when the reversal in interest rates will occur and what it could mean. Blick provides the most important answers.
When will the rate cut come?
Economists at UBS expect the SNB to raise its key interest rate by 0.25 percentage points to 2 percent for the last time in the third quarter. The first rate cut is unlikely to become an issue until the second half of 2024. Provided the SNB sees the risk of inflation as permanently averted by then. In addition, according to UBS’s assessment, the European Central Bank (ECB) should lower interest rates first.
What does the return in interest rates mean for rents?
Rents are likely to increase significantly over the next two years. UBS economist Alessandro Bee expects the reference rate to be increased from 1.5 percent to 2 percent by 2025 at the latest. An increase of 0.25 percentage points results in a 3 percent increase in rent. At least for rentals calculated based on a lower reference interest rate. And the reference rate is unlikely to drop anytime soon. It is based on mortgage interest rates and hardly any improvement can be expected for them either.
Will mortgage rates fall again?
The expected increase in key interest rates is already included in long-term mortgages. Not so with Saronic mortgages. Interest rates will continue to rise here as these depend on the current market interest rate. Even though the key interest rate should fall significantly again, homeowners hardly expect mortgage rates to fall in the medium term. On the contrary: Zürcher Kantonalbank expects the market average to be 3.25 percent for five-year fixed-rate mortgages and 3.3 percent for ten-year mortgages by the end of 2023. Mortgage interest rates are likely to remain high over the long term. Because they rely heavily on interest rates on government bonds, which should be at a significantly higher level than UBS.
Where will the key interest rate be in the medium term?
For the period from 2025 to 2030, the big bank expects an average of 1 to 1.5 percent inflation and a key interest rate of 1 to 1.25 percent, provided that the baseline scenario economists consider most likely to materialize. This means that the base interest rate will be significantly higher than in the period between 2008 and 2022. At this stage of negative interest rates, the average was –0.3 percent. “We expect the base rate to stabilize at a slightly higher level due to higher inflationary pressure,” Bee says.
Why do inflationary pressures stay high?
On the one hand, this has to do with the retirement wave among baby boomers. “This could exacerbate labor shortages, which could lead to further wage pressure,” says economist Bee. In addition, supply chains may continue to be a cost factor. Among other things, due to the ongoing tension between the US and China. “Companies will try to pass cost pressure to consumers.”
Source :Blick
I’m Tim David and I work as an author for 24 Instant News, covering the Market section. With a Bachelor’s Degree in Journalism, my mission is to provide accurate, timely and insightful news coverage that helps our readers stay informed about the latest trends in the market. My writing style is focused on making complex economic topics easy to understand for everyone.
