The Swiss National Bank (SNB) will raise the key interest rate by 0.5 percentage points, as announced on Thursday. The key interest rate is currently 1 percent. With the rate hike, the SNB wants to keep inflation under control. The interest rate change will take effect from tomorrow, Friday. However, market participants are already reacting on the day of the announcement. Here is an overview of the consequences of an interest rate hike for savers, homeowners or those dreaming of owning their own home.
What does the interest rate increase mean for tenants?
The SNB’s interest rate decision has no direct impact on apartment and house rents. The prerequisite for a rent increase is an increase in the reference interest rate. That’s 1.25% right now. It is currently unclear when and whether this will increase. The next possible date for the increase is March. But experts aren’t assuming the Federal Housing Authority will raise the reference interest rate in the spring. An increase of 0.25 percentage points is more likely in June or even as late as September 2023. After an increase, landlords have the right to increase rents. But not in all cases.
Do rents always increase with a higher reference interest rate?
no If the reference interest rate goes up, rents don’t automatically do the same. Many leases still rely on high interest rates of the past, as the reference interest rate has fallen steadily since 2008. This applies in all cases where the landlord does not pass on the reduced reference interest rate to the landlord and the tenant does not claim a rent reduction. Example: If you signed your lease in 2010, your contract is based on a reference interest rate of 3 percent. Until the reference interest rate is back to 3 percent, this tenant need not fear a rent increase.
What about the Swiss franc?
An increase in the key interest rate by the SNB often leads to a strengthening of the Swiss franc. However, this effect is not always obvious, as exchange rates are also affected by other factors. For example, when the global economy is going through a turbulent time. Subsequently, large amounts of foreign capital are frequently exchanged for the Swiss franc, which is internationally regarded as a “safe haven”. The increase in interest rates by the US Federal Reserve yesterday and the European Central Bank today greatly alleviates the pressure on the franc to appreciate.
On Thursday, the euro benefited, at least temporarily, from the prospect of further rate hikes in the currency area. At its daily high, the common currency rose to $1.0735, its highest level since June. Following the ECB’s announcement on Thursday afternoon, the euro rose broadly against the franc and is now trading at 0.9900 francs.
Is inflation over now?
Inflation in Switzerland has been falling again since September. It’s currently relatively stable at just under 3 percent. However, this is still well above the SNB’s 2 percent maximum target. SNB boss Thomas Jordan (59) therefore leaves open for more rate hikes next year. However, inflation has peaked for now, according to the SNB. It expects an average of 2.2 percent inflation for next year. This is basically good news for consumers. However, it would be too early to declare the end of the fight against inflation due to the uncertain geopolitical situation.
What does a rate hike mean for savers?
Savings interest rates will continue to rise and are already rising. When the SNB last raised its key interest rate in September, many banks had increased interest rates on their savings accounts. And today, many banks have announced further rate hikes for next year. This is because banks are in competition with each other. The more interest you pay, the more money you get. On average, banks now pay around 0.5 percent interest on private accounts. When it comes to retirement accounts, it’s even more so. Therefore, an increase in interest rates is a blessing for savers, albeit a small one.
Why are banks so slow to increase savings rates?
There’s a simple reason for this: high interest rates on savings deposits cost banks money. With the return in interest rates, loan rates have also increased, and this situation is pouring money into the banks’ coffers. But banks must first bring these more expensive loans to men or women. And this takes time. Consumers are initially deterred by rising loan interest rates. Demand is falling and it is only providing slowly increasing income. This is why banks increase their savings interest rates only gradually.
What does the rate decision mean for homeowners?
Since the start of the year, home loan interest rates have risen from just under 1 percent to almost 3 percent. This was partly due to inflation and the consequent return in interest rates. Mortgage interest rates hit an all-time high in October, averaging 2.9 percent for a fixed-rate mortgage. They have since dropped again and are now around 2.4 percent. This is a sign that the market is bullish and the SNB is starting to get inflation under control. Experts expect housing loan interest rates to fall to these levels. Assuming, of course, that inflation does not suddenly rise again. In this case, mortgage interest rates would have to do the same.