SNB Governor Thomas Jordan surprises with drop in interest rates: Consequences for tenants, homeowners and savers

class=”sc-29f61514-0 icZBHN”>

The Swiss National Bank (SNB) is suspending interest rates. SNB President Thomas Jordan (60) said he was standing on the sidelines but continuing to closely monitor how inflationary pressure was developing. The decision to leave the key interest rate at 1.75 percent rather than raise it to 2 percent rubbed most experts astray. For many households, the drop in interest rates is still good news.

Inflation pressure has decreased in Switzerland. Inflation in Switzerland has fallen slightly since the SNB’s last monetary policy review in June. The economic slowdown in Switzerland also points to an interest rate increase that will slow down the economy. He plays into the hands of the SNB committee around Thomas Jordan. There is speculation that inflation may fall more than expected.

The Central Bank set the inflation target range between 0 and 2 percent. Inflation here was recently at 1.6 percent. The primary goal of the Central Bank is and will remain a stable monetary policy. The SNB will reassess whether inflation is under control in December. However, for now, interest rates have reached their peak with this decision.

Homeowners with a Saron mortgage can breathe a sigh of relief. Your mortgage will no longer be more expensive in the next three months. Saron products were previously the cheapest option for financing a home purchase. However, the interest rates of all Hypo products are increasingly becoming the same. “Fixed-rate mortgages are now likely to be a few basis points cheaper,” says Fredy Hasenmaile, 56, chief economist at Raiffeisen.

At the end of August, an average interest rate of 2.81 percent was applied for a 10-year maturity. The average interest rate for a two-year mortgage is 2.72 percent, and for a five-year mortgage it is 2.71 percent.

Well, good news for homeowners. The danger of rising costs seems to have disappeared. But the SNB warns against overconfidence: “Fragility in these markets still exists,” it said in Thursday’s announcement.

People with tight budgets should avoid unnecessary expenses for now. Because: Health insurance premiums, rents and energy costs will continue to increase as of January 2024. Inflation is likely to continue eating into wage growth next year; At best, real wages will remain at the same level. The trade union federation thinks the decision not to raise interest rates further is “sensible”. A further increase in the interest rate could push rents even higher.

Tenants will likely have to expect rising costs despite the drop in interest rates. If the relevant reference interest rate increases, your rent will increase. This is based on the average interest rate of mortgages issued by banks. The reference interest rate increased on 1 June 2023 for the first time since it was introduced in 2008. For many rental households, this meant an increase in rents from October.

Even if the basic interest rate remains the same, the home loan interest rate is now significantly higher than it was two years ago. And with each new mortgage issued, the average interest rate on mortgages also increases. Experts therefore expect the reference interest rate to increase again on December 1. “This upward trend is likely to continue for a longer period of time,” says Hasenmaile. The reference interest rate is expected to rise to 1.75 percent in December. “A third increase in the reference interest rate to 2 percent is unlikely to be avoided sooner rather than later,” Hasenmaile said. It expects this in the second half of 2025.

Banks have been increasingly criticized lately for making a big deal about the interest rate business. At the same time, bank customers’ savings are constantly losing value. Because inflation is higher than savings interest rates. This pressure on banks is now decreasing somewhat. However, the first banks announce an increase in savings interest rates for their customers. After all, it is an ideal time for good advertising. Bank Valiant, Zuger Kantonalbank and online bank Yuh have already announced interest rate increases following the SNB decision. Raiffeisen Switzerland is also offering increases to regional banks. It’s quite likely that more banks will follow in the next few days. There is scope for this. Many banks recorded large increases in their interest business profits in the first half of the year, even reaching record figures. Now the high account management fees introduced during the negative interest phase need to decrease again.

Source :Blick