Since mid-2020, the Swiss National Bank has raised its key interest rate in five steps from -0.75% to +1.75%. On March 21, the three-member Governing Board met for the first monetary policy assessment of the year and decided to cut the key interest rate from 1.75% to 1.50%. In the run-up to the meeting, several media outlets speculated about a cut in the key interest rate. On the one hand, because inflation had fallen to 1.2% in February, the lowest level since October 2021. Secondly, because the Swiss franc had lost some of its value against the euro and the dollar since the start of 2024 following strong gains last year. Although many analysts surveyed by Bloomberg did not expect the first rate cut until summer 2024, capital market interest rates barely reacted to the decision. The cut was apparently already priced into interest rates.
In February, inflation in the USA fell from 6 to 3.2 percent year-on-year and in the eurozone from 8.5 to 2.6 percent. Despite this, neither the US Federal Reserve nor the European Central Bank have any reason to lower interest rates. The decline is slower than expected. It is therefore likely to take longer than hoped before inflation in the eurozone and the US reaches its target range.
Many analysts believed that the SNB would wait and see, even though inflationary pressure in Switzerland has eased and inflation has been within the target range of 0 to 2 percent for months. The SNB is cautious and vigilant - and has fared better than other central banks in recent months. The inflation rate has fallen surprisingly sharply: from 1.7 percent in December to 1.3 percent in January and 1.2 percent in February. Core inflation, which excludes volatile goods such as food, energy and fuel, is even lower at 1.1 percent. It is unclear how rents will influence inflation. The increase in the reference interest rate at the beginning of December 2023 will not have an impact on rents until April 2024. However, the effect should be mitigated by the SNB's interest rate decision. "The easing of monetary policy was made possible because the fight against inflation has been effective over the past two and a half years," writes the SNB in its press release.
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The SNB's decision was priced into interest rates. As a result, money market and capital market interest rates reacted only slightly. At the media conference, SNB Chairman Thomas Jordan, who will step down at the end of September 2024, emphasized that the SNB would adjust its monetary policy "again if necessary to ensure price stability in the medium term. And the SNB is still prepared to be active on the foreign exchange market if necessary." The SNB now expects the inflation rate to remain within the target range of 0 to 2 percent over the next few years (2024: 1.4 percent / 2025: 1.2 percent). In December, it was still forecasting 2.2 percent for 2024 and 1.9 percent for 2025. The SNB is the first major central bank to scale back its tight monetary policy to curb inflation. There are increasing signs that the US Federal Reserve and the European Central Bank will cut their key interest rates in June.
If you have financed your home with a SARON mortgage, you will benefit directly because SARON is directly linked to the prime rate. A SARON mortgage now costs 2 percent or more (1.50 percent plus at least 50 basis points credit rating margin). If you have financed your home with a fixed-rate mortgage or want to finance your property purchase with a fixed-rate mortgage, little will change. The market was expecting the SNB not to lower its key interest rate, which is why interest rates for fixed-rate mortgages hardly moved at all after the SNB's decision. As forecast in our article "Mortgages: interest rate trend until the end of 2024 (1st quarter)", mortgage rates have risen slightly since the last monetary policy decision in 2023. On March 21, 2024, for example, a ten-year fixed-rate mortgage with UBS key4 mortgages cost at least 1.90 percent* or 21 basis points more than on December 14, 2023. SARON mortgages have been more expensive than fixed-rate mortgages since the beginning of October (short terms) and the beginning of November (long terms).
The SARON reference interest rate is directly linked to the prime rate and can fluctuate. SARON mortgages are therefore suitable for homeowners who can live with interest rate fluctuations and have sufficient financial leeway. Those who prefer to calculate safely will sleep more soundly with a fixed-rate mortgage.
The easing inflationary pressure and the prospect of further mortgage rate cuts are providing relief for property owners who need to extend or redeem a mortgage in the foreseeable future and for property buyers. Most real estate experts assume that the real estate market will stabilize at a high price level. In 2024, they expect prices to rise slightly at best (+0.5% for single-family homes and +1% for condominiums). There is little to suggest a correction (-10% or more), although the real estate market is highly valued. According to the UBS Real Estate Bubble Index, there is little risk of the real estate bubble bursting. The index fell to 1.41 at the end of 2023 and is therefore well below the value of the early 1990s (2.60), when the bubble burst and real estate in Switzerland lost up to 40 percent of its value.
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Most market participants are now assuming that the SNB will cut the key interest rate to 1% this year, probably in two stages. Provided that the economic and geopolitical uncertainties do not throw a spanner in the works for the SNB.
Our forecast until the end of 2024:
* Indicative interest rates on March 21, 2024 at 12 noon. The interest rates were determined by UBS key4 mortgages on the basis of these parameters: Canton of Zurich, loan amount 500,000 Swiss francs, affordability 20 percent, loan-to-value 50 percent, disbursement date March 22, 2024. These interest rates are not a binding financing offer.
The monetary policy assessment on September 26, 2024 will be the last with long-serving SNB Chairman Thomas Jordan. A successor has not yet been appointed.
According to long-term studies, money market mortgages such as the SARON mortgage were cheaper than fixed-rate mortgages in the past. Since October and November 2023, short- and long-term mortgages have been cheaper than the SARON mortgage. Those who, like most market participants, expect mortgage rates to fall should take out a fixed-rate mortgage with a term of two or three years in order to bridge the uncertainty during the expected interest rate cuts and to be able to refinance more cheaply once the term has expired.
It makes sense not to put everything on one mortgage, but to spread the financing over various mortgage models and terms. In this way, you spread the interest rate risk and at the same time minimize the risk of having to renew the entire amount at the worst possible moment, for example during a period of high interest rates. UBS key4 mortgages recommends this mix:
How you finance or refinance your home depends on more factors than the current interest rate. Your financial situation, your future plans, your risk capacity and your assessment of the development of mortgage interest rates play an equally important role in the choice of mortgage model and terms. If in doubt, seek advice and compare offers. This is even more important than usual in uncertain times. The most favorable offer at first glance is not always the best offer for you.
