At Saron’s expense: Fixed-rate mortgages have become significantly more attractive again

class=”sc-29f61514-0 dXbCZE”>

Interest rates on short- and medium-term fixed-rate mortgages have fallen significantly over the past three months. While the best offer for a 5-year fixed-rate mortgage loan was 2.18 percent interest rate at the end of August, deals below 2.00 percent can be targeted again today.

The best price for a five-year fixed-rate mortgage on Hypotheke.ch is 1.96 percent, while Moneypark sets it slightly lower at 1.95 percent. Interest rates in the range of 2 to 4 years are even more attractive. According to Zürcher Kantonalbank data, the swap interest rate subject to calculation dropped to 0.30 percent in the last three months. The three-year swap rate is still 1.4125 percent (see table below).

(Source: ZKB, Cash.ch)

The interest rate on a fixed-rate mortgage consists of the swap rate and the bank’s mortgage margin. With a typical margin of 0.50 to 0.60 percent, a three-year fixed-rate mortgage can be had for just over 1.90 percent. Interest rates on short- and medium-term fixed-rate mortgages are more attractive due to uncertainties surrounding the conflict in the Middle East, weak economic performance in Europe and market participants’ expectations that the major central banks have completed interest rate hikes. loop.

These arguments led to a reduction in the spread of the swap rate on the yield of Swiss federal bonds, whose yields moved sideways in the third quarter. While the five-year fixed-rate mortgage premium was 0.80 percent three months ago, it fell to 0.46 percent on Monday. Therefore, price growth is at the lower end of the long-term average of 0.45 to 0.55 percent.

Will long-term interest rates on fixed-rate mortgages continue to fall?

Despite the decline in short- and medium-term interest rates, we cannot automatically assume that interest rates on fixed-rate mortgages will be even lower in the foreseeable future. Economists and analysts expect the Swiss National Bank (SNB) to keep key interest rates at their current level for longer. St. On the one hand, the interest rate level in Switzerland is still low and long-term swap rates have been hovering around the SNB’s base rate since the summer, says Thomas Stucki, investment manager at Kantonalbank of Wales. “We do not expect the first possible interest rate cut until mid-2025. Until then, long-term Swiss swap interest rates are likely to move in a horizontal trend and in the range of 1.65 to 1.85 percent.”

UBS economists are slightly more optimistic and expect a significant rate cut early next year. “The SNB’s rate hike cycle is likely to come to an end and the impact on long-term interest rates is manageable.” The expectation of a significant interest rate cut in 2024 is likely to lead to a further decrease in interest rates in the coming quarters. In particular, UBS predicts that 5-year swap rates will drop to 1.3 percent next summer.

Geneva-based private bank Heritage makes a similar prediction. Over the next two years, the swap rate for five-year fixed-rate mortgages is expected to drop from 1.50 percent to 1.25 percent. The conflict in the Middle East will clearly have a negative impact on growth in the coming months – especially if the conflict spreads to other countries, explains Jean-Christophe Rochat, Chief Investment Officer of Banque Heritage, when asked by Cash.ch on Monday. “Based on these recent developments, we expect Swiss franc interest rates in the 2- to 5-year range to come under downward pressure over the next few months.”

Saron is more expensive than a five-year fixed-rate mortgage

Interest rates on Swiss franc swaps have been moving sideways or slightly downwards for several months after rising at a record pace last year following the SNB’s rate hikes. However, a 20-year long-term view shows that fixed-rate mortgages are currently cheaper than the long-term average, with financing costs over 3 percent.

Therefore, fixed-rate mortgages with three, four or five-year terms may be considered attractive. These are now cheaper, especially compared to Saron – based on the Saron rate of 1.75 per cent, effective Saron interest costs are between 2.25 and 2.50 per cent depending on the bank – compared to around 2 per cent for fixed-rate mortgages. The cost of a 1 million franc mortgage and a five-year fixed-rate mortgage, 50 percent financed by Saron, will be 11,250 francs for the 2.25 percent Saron part and 10,000 francs for the fixed-rate mortgage part of 2.00 percent per year. .

Particularly for mortgage holders who finance themselves solely through a Saron mortgage and bear all the risk of interest rate fluctuations, this is a good time to tie some of the refinancing to rates around 2 percent over the medium term.

Don’t ignore the risks

Although market participants currently consider the risk of further increases in Swiss franc interest rates to be negligible, property owners should always be careful in this regard. This is particularly appropriate given that the SNB is independent regarding interest rate decisions and is therefore always ready for a surprise. The interest rate cut announced at the meeting on September 21 was an unexpected development because the majority of the market was expecting a further increase. So it’s not entirely unreasonable to think that the SNB may, contrary to expectations, raise interest rates at its next meeting on December 14 – even if almost all economists are currently betting that key Swiss interest rates and the Saron will remain steady.

Two factors play an important role here. While inflation continues to be stubborn, especially in the USA and the Eurozone, there are signs of a new rise in inflation in Switzerland at the beginning of 2024, when electricity, health insurance and index-based rental prices will increase. . It should also be noted that the SNB still assumes relatively high inflation in its inflation forecast. Swiss monetary authorities expect local inflation to be 2.2 percent in 2024 and 1.90 percent in 2025. If inflation turns out to be this persistent, it cannot be ruled out that the SNB will raise its key interest rates from 1.75 percent to 2.00 percent. This means both Saron and fixed-rate mortgages will become expensive again.

On the other hand, it cannot be ignored that the conflict in the Middle East will continue to increase. This will likely cause oil prices to increase significantly, which will negatively impact inflation rates.

Optimists might say that the franc is very strong and therefore the risk of an extreme increase in inflation due to imported inflation is low. However, it should not be forgotten that the pendulum in foreign exchange markets can swing in the opposite direction at any time and often unexpectedly. On the other hand, if geopolitical tensions decrease, the franc may begin to weaken in the coming weeks and months.

Source :Blick