On June 16, 2022, the Swiss National Bank raised its key interest rate for the first time in 15 years. As a result, mortgage rates rose in June to as high as 2.65 percent for five-year mortgages and up to 3.08 percent for ten-year mortgages - the highest in a decade. Mortgage rates fell sharply again in July until the winds shifted again in mid-August. After the key interest rate increase from minus 0.25 to plus 0.50 percent on September 22, 2022, fixed-rate mortgages with five or ten-year terms will cost 2.6 percent* and 2.85 percent*, respectively, and SARON money market mortgages will cost 0.91 percent* (plus credit margin). These are mean values of reference prices, so-called showcase rates, which are published online by many banks, but are certainly negotiable for good customers.
* Reference date: September 23, 2022
The SARON is closely oriented to the Key interest rate of the Swiss National Bank. On top of this prime rate, banks add a creditworthiness-related margin of 0.6 to 1.3 percent.
Most experts expected the SNB to raise its key interest rate by 0.50 to 0.75 percentage points, with some even expecting a full percentage point. With the increase from minus 0.25 to plus 0.50 percent, the SNB has ended the negative interest rate phase in Switzerland, which lasted almost eight years. The SNB had lowered its key interest rate to minus 0.25 percent on December 18, 2014, and to minus 0.75 percent on January 15, 2015. As a result, mortgages and home ownership were cheaper than ever for years. That is now coming to an end. With the second interest rate hike this year, the SNB wants to fight inflation without choking off the economy. In August, the inflation rate in Switzerland rose to 3.5 percent after 3.4 percent in June and July. The SNB's long-term target is 2 percent.
In its September 2022 interest rate forecast, UBS, for example, expects interest rates for federal bonds and mortgages to rise slightly and interest rates to fluctuate more widely in the coming months. The reasons for this are the uncertainty and fear of a global economic downturn, the war in Ukraine, the threat of gas shortages in Europe, and the possible electricity shortage in Switzerland.
Depending on the bank, you can extend fixed-rate mortgages up to 18, sometimes even 24 months before expiration and fix the current interest rate for an additional fee with a forward mortgage.
When choosing a mortgage model, your financial situation and risk capacity are at least as important as the interest rate and interest rate forecasts. Money market mortgages are less expensive than fixed-rate mortgages. With a SARON mortgage, you can save money, but you should regularly check interest rate trends and have enough financial flexibility for interest rate fluctuations. With a fixed-rate mortgage, you can plan with budget security. It makes sense to combine different mortgage models and terms. In this way, you spread the interest rate risk over different prime rates and minimize the risk of having to extend the entire amount in an unfavorable interest rate situation. Three options in times of (slightly) rising mortgage rates:
After the first interest rate hike in mid-June, many buyers and homeowners took out more SARON mortgages or fixed-rate mortgages with shorter terms, but fewer fixed-rate mortgages with longer terms. Apparently, the price for the budget security of long-term fixed-rate mortgages is too high for them, so they have taken out money market mortgages or fixed-rate mortgages with shorter terms. Nevertheless, the ten-year fixed-rate mortgage is still the most popular mortgage model in Switzerland, accounting for around 50 percent of total mortgage volume.
Without master term, you can switch from a SARON mortgage to a fixed-rate mortgage in a matter of days if interest rates rise or you expect rates to rise.
With our Mortgage Comparison you can compare the offers of several providers and combine the most attractive offers. This is how you optimize your interest burden and minimize the interest risk.
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In the U.S., the Federal Reserve System, or Fed for short, has raised key interest rates five times this year through the end of September. At the beginning of 2022, the key interest rate in the U.S. was 0 to 0.25 percent, and at the end of September it was 3 to 3.25 percent. Like the SNB, the Fed is aiming for a 2 percent inflation rate, but at 8.3 percent in August, it is miles away from that. At 9.1 percent, inflation in the euro zone is even higher than in the USA. That is why the European Central Bank has raised its key interest rate from 0.50 to 1.25 percent - higher than ever before.
At 3.5 percent in August, inflation in Switzerland is high by our standards. The main culprits are prices for energy, food and raw materials. For 2022, the SNB expects annual inflation of 3 percent. Like other central banks, the SNB is trying to fight inflation with interest rate hikes without choking off the economy or plunging Switzerland into a recession. Almost all experts expected an increase of 0.50 or 0.75 percentage points on September 22, which is why the increase was included in the interest rates and did not surprise the market.
The fight against inflation will keep central banks busy for longer. That's why many experts and all central banks expect further rate hikes in 2022 and 2023. In the U.S., for example, the Fed has announced further rate hikes. Experts expect up to 4.50 percent next year. Interest rates in Switzerland will most likely continue to rise as well. On September 22, SNB President Thomas Jordan said that more rate hikes could soon be necessary. Soon could be the 4th quarter of 2022. Some experts expect an increase to 1 percent this year.
The end of negative interest rates in Switzerland will be felt by all of us sooner or later. Homeowners will pay higher mortgage rates, tenants higher rents and companies higher interest rates for their investments. In addition, the cost of living will rise. Without wage increases in step, many people are threatened with a real loss of purchasing power. With its monetary policy, the SNB is walking a fine line between inflation and recession. Stagnating or even falling economic growth could jeopardize jobs in Switzerland.
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One in five homeowners will have to extend a mortgage in the next few months. Probably at significantly higher mortgage interest rates than before. This increases housing costs, one of the largest items in the budget. Many homeowners have become accustomed to the cheap money and have budgeted with 1 or 2 percent instead of 5 percent as in the affordability calculation of their bank. This is why some people may now be considering whether they can or want to afford the house or apartment, even if the affordability is still mathematically given. For all other homeowners, nothing will change at the moment. However, they should think about refinancing too early rather than too late and consider sensible alternatives.
The key interest rate increase to plus 0.50 percent particularly affects homeowners who have financed their home with a SARON mortgage. As a rule, the interest rate is little higher than the prime rate. As long as this was negative, they only had to pay the creditworthiness-related margin. Now you pay 0.91 percent interest (benchmark rate on September 23, 2022) and, for example, 0.6 percent margin, or 1.51 percent. This is still significantly cheaper than a fixed-rate mortgage, but the interest rate can fluctuate widely. Downwards and, in the foreseeable future, mainly upwards. Experts expect 1.6 to 2 percent for SARON mortgages (interest and margin) and 2.8 to 3.2 percent for ten-year fixed-rate mortgages by the end of 2022.
The interest rate difference between a fixed and money market mortgage is the price you pay for a quieter night's sleep. Those who have no problem with rising interest rates can save money with a SARON mortgage.
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In one year, prices for condominiums have risen by an average of 7 percent and for houses by 8 percent. With higher mortgage rates, demand for homeownership is expected to fall as some prospective buyers drop out, and supply is expected to rise as some homeowners want or need to sell. Demand remains high and will continue to exceed supply. That is why many brokers expect stable to slightly rising real estate prices in the coming months. For a correction (minus 10 percent or more), key interest rates and thus mortgage rates would have to rise much more sharply; it is still too early for that. But: "A significant tightening of financial conditions could trigger a correction in the real estate market," said SNB Vice President Martin Schlegel at the press conference on September 22, 2022.
Do you want to know how much your house or apartment is worth? With our Property Valuation estimate the market value in two minutes and can contact verified realtors from your area if you want to sell your home.
Whether you finance or refinance your home in a stable, balanced or market-oriented way (see "Options in the event of rising mortgage rates") depends on more factors than just 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 your assessment of the mortgage interest rate trend play a decisive role. If you are unsure, you should seek advice and compare offers. This is particularly important in uncertain times like these. The most favorable offer is not always the best offer for you. That's why good advice is not expensive, but valuable.
