In our last mortgage rate forecast in October 2022, we predicted an increase in the SNB key interest rate from 0.50 to 1.00 percent. On December 15, 2022, SNB President Thomas Jordan announced the third and final key interest rate hike of the year: In mid-June, the key interest rate was raised by 50 basis points to minus 0.25 percent, at the end of September by 75 basis points to plus 0.50 percent, and a few days before Christmas by 50 basis points to plus 1 percent. With these rate hikes, the SNB aims to fight inflation in Switzerland without choking off the economy. After hitting a high in August (3.5 percent), inflation fell to 3 percent in November, but is still well above the Swiss National Bank's target range of 0 to 2 percent.
The consequences of the interest rate increases are felt by everyone. Homeowners pay higher mortgage rates if they have financed their house or apartment with a money market mortgage or have to extend their fixed-rate mortgage, tenants pay higher rents and companies pay higher interest rates on loans for investments. At the same time, the cost of living is rising. That is why many companies have increased their wages to compensate for the real loss of purchasing power. With its monetary policy, the SNB is walking a fine line between inflation and recession. The federal government's expert group on economic forecasts expects economic growth of 1 percent and an inflation rate of 2.2 percent in 2023. Weak economic growth could jeopardize jobs in Switzerland. However, the persistently large shortage of skilled workers in many sectors argues against this.
If you financed your home with a fixed-rate mortgage and need to extend your mortgage, you will pay significantly more for it. Ten-year fixed-rate mortgages cost 2.52 percent (benchmark price) on December 15, which is twice as much as at the beginning of 2022. This means your housing costs (mortgage interest, ancillary costs as well as maintenance costs) will rise. If your mortgage has not yet expired, little will change for you. Nevertheless, you should think about refinancing.
If you financed your home with a Saron mortgage, your housing costs will increase significantly. The prime rate is based on the SNB prime rate and was quoted at 0.45 percent on December 15. In addition, there is a bank- and creditworthiness-dependent margin of 0.6 to 1.3 percent. Although Saron mortgages have lost much of their interest rate advantage in recent months, they are most likely to be cheaper in the long term than fixed-rate mortgages with long maturities.
Real estate prices continued to rise strongly in 2022. However, price growth has slowed after the first and, above all, the second increase in the prime rate. Due to the higher mortgage interest rates, demand is likely to fall because some prospective buyers can no longer afford or no longer want to own a home, and supply is likely to rise because more and more homeowners want or need to sell their house or apartment. In November, a quarter of the 1,047 homeowners surveyed by an Internet comparison service said they were afraid they would soon no longer be able to pay their mortgage interest. Nevertheless, demand will continue to outstrip supply even after the third interest rate hike of the year, especially in good locations. That is why most real estate agents expect real estate prices in Switzerland to remain stable or rise slightly. A price correction of 10 percent or more is not expected until mortgage rates rise more sharply.
Most experts expected a key rate hike of 50 basis points, and some even reckoned with 75 basis points. That is why mortgage rates hardly reacted to the SNB decision on December 15, 2022. Because further key rate hikes are also expected in the new year until the SNB gets inflation and the recession back under control, mortgage rates in Switzerland are likely to rise slightly by the end of 2023:
* Estimates for indicative interest rates. Good customers can negotiate better conditions with their bank.
Most experts now assume that mortgage rates will not rise sharply in 2023, but could fluctuate widely. Depending on whether central banks focus more on inflation or recession. That's why you should keep a close eye on the capital market and mortgage rates and take advantage of possible market fluctuations to close your deal.
For the mortgage model choice, your financial situation and risk capacity are as important as the interest rate and interest rate forecasts. With a Saron mortgage you can save money, but you should regularly check the interest rates and have enough financial leeway for interest rate fluctuations. With a fixed-rate mortgage, you can plan with budget certainty. It makes sense to combine different mortgage models and terms. This way you spread the interest rate risk and at the same time minimize the risk of having to extend the entire amount at an unfavorable moment:
After the first two prime rate increases, many buyers and homeowners have taken out more Saron mortgages or fixed mortgages with shorter terms and fewer fixed mortgages with longer terms. Nevertheless, the ten-year fixed-rate mortgage is still the most popular mortgage model in Switzerland, accounting for 50 percent of mortgage volume.
How you finance or refinance your home depends on more factors than the current interest rate. When deciding on a mortgage model and the appropriate terms, your financial situation, future plans and risk capacity as well as an assessment of the mortgage interest rate trend play just as important a role. If you are unsure, you should seek advice and compare offers. This is even more important than usual in uncertain times like these. The most favorable offer at first glance is not always the best offer for you.