On 14 December, the Governing Board of the Swiss National Bank met for the last monetary policy assessment of the year. Out of the 31 economists surveyed by Reuters, 31 expected no change in the key interest rate. As is often the case, the majority were right: the SNB's key interest rate, which has been raised in five steps from -0.75 % to +1.75 % since mid-2020, remains unchanged. This is the first time in a while that it has been above inflation, which fell to 1.4 % in November 2023. The SNB's Governing Board explained its decision as follows: "Inflationary pressure has eased slightly over the last quarter. However, uncertainty remains high. The SNB will therefore continue to monitor closely inflation developments and, if necessary, adjust its monetary policy to ensure that inflation remains within the price stability range in the medium term." This means that although the inflation rate is within the target range of 0 to 2 %, it is still too early to cut interest rates.
In the USA, the year-on-year inflation rate fell from 7.1 to 3.1 % and in the eurozone from 10.1 to 2.4 %. This means that neither the US Federal Reserve nor the European Central Bank currently have any reason to raise interest rates. However, it is still too early for interest rate cuts in both the US and Europe.
Nothing speaks in favour of an increase, and nothing in favour of a reduction. The experts at an SNB media conference were more unanimous than ever. The SNB is on course with its monetary policy, but remains cautious and vigilant. There are good reasons for its restraint and the pause in interest rates:
The SNB's decision was expected and had been priced into interest rates for some time. Accordingly, money and capital market interest rates barely reacted. At the media conference, SNB Chairman Thomas Jordan emphasised that the SNB would be keeping a close eye on inflation and the economic outlook over the coming months. The SNB currently expects the inflation rate next year to be 1.9 %, just within its target range of 0 to 2 %, and the economy (measured in terms of GDP) to grow by 0.5 to 1 %. The SNB is thus somewhat more pessimistic than the Federal Government's Expert Group on Economic Forecasts, which has revised its forecast for economic growth in 2024 downwards from 1.5 % to 1.3 %. This confirms our impression that the SNB is acting cautiously and prudently.
If you have financed your home with a SARON mortgage, nothing will change as the interest rate is linked to the base rate. There is also a creditworthiness-dependent margin of 50 basis points or more. SARON mortgages currently cost at least 2.25 %. If you have financed your home or property purchase with a fixed-rate mortgage, little will change. The market did not expect either an increase or a decrease, which is why interest rates for fixed-rate mortgages have hardly moved at all since the SNB's decision. On the other hand, mortgage rates have fallen significantly since the last monetary policy assessment on 21 September. On 14 December 2023, the benchmark interest rate for a ten-year fixed-rate mortgage at UBS key4 mortgages, for example, was 1.69 %* or higher. This is 0.66 percentage points lower than in the last assessment on 21 September. For the first time since their introduction, SARON mortgages cost more than fixed-rate mortgages with short terms (since the beginning of October) and long terms (since the beginning of November).
The SARON reference interest rate is linked to the SNB's key interest rate and can fluctuate. SARON mortgages are therefore suitable for homeowners who can live with interest rate fluctuations and have a certain amount of financial room for manoeuvre. Those who prefer to calculate securely will feel more at ease with a fixed-rate mortgage.
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The easing inflationary pressure and the prospect of falling mortgage interest rates are providing relief for property owners who need to extend or redeem a mortgage in the foreseeable future and property buyers. Property experts assume that the property market will stabilise at a high price level. They expect prices to remain stable or fall slightly in 2024. There is little to suggest a stronger correction (-10 % or more), although the property market is highly valued. According to the UBS Real Estate Bubble Index, the risk of the property bubble bursting is low. The index fell to 1.41 in the third quarter and is well below the value at the beginning of the 1990s (2.60), when the bubble burst and property prices in Switzerland collapsed by up to 40 %.
In the article «Swiss Property Market: Our Forecast for 2024» we predict how property prices will develop over the next few years and explain what this means for property buyers and sellers and why a real estate agent has never been as valuable as it is today.
Do you want to sell your house or flat because prices have risen so much since the turn of the millennium? With our property valuation you can estimate the market value and contact verified estate agents who know the market, the region and potential buyers.
The SNB's decision had been expected by most market players. As a result, mortgage rates barely moved after 14 December. The situation has changed little for homeowners. Regardless of whether they have financed their property with a SARON mortgage and/or a fixed-rate mortgage. Following the SNB's decision, all options remain open to them. Although an interest rate hike cannot be ruled out, it is becoming increasingly unlikely - we have probably reached the interest rate peak in Switzerland. Most economists assume that the SNB will lower the key interest rate in 2024. Probably not in the spring, but in the summer or autumn at the latest. Assuming that the economic and geopolitical uncertainties do not thwart the SNB's plans.
If not, mortgage rates will fall in the second half of the year. Our forecast until the end of 2024:
* Indicative interest rates on 14 September 2023 at 10 a.m. The interest rates were determined by UBS key4 mortgages on the basis of these parameters: Canton of Zurich, loan amount CHF 500'000, affordability 20%, loan-to-value 50%, disbursement date 22 September 2023. These interest rates are not a binding financing offer.
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According to long-term studies, money market mortgages such as SARON mortgages were more favourable than fixed-rate mortgages in the past. For the first time since their introduction, SARON mortgages are more expensive than fixed-rate mortgages. Nevertheless, UBS estimates that money market financing with a SARON mortgage is more favourable over ten years. This overview can be helpful to make a decision, but is no substitute for personal advice from a specialist:
Fixed-rate mortgages are generally more expensive than money market mortgages. The interest rate normally rises with the term because the interest rate risk increases. If you have previously favoured SARON mortgages in your strategy, you should not switch to fixed-rate mortgages due to the current unusual situation. Unless you have fundamentally reconsidered your mortgage strategy.
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 minimise the risk of having to renew the entire amount in a high-interest phase.
How you finance or refinance your home depends on several factors, not just 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 term. If you are unsure, seek advice and compare offers. This is even more important in uncertain times like these. The most advantageous offer at first glance is not always the best offer for you.
