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The Swiss National Bank (SNB) raised its key interest rate from minus 0.25 to plus 0.50 percent on September 22nd, 2022. This marked the end of a long phase of negative interest rates in Switzerland after eight years. As a result, financing costs for fixed-rate mortgages with a ten-year term, for example, almost tripled every year. At the same time, higher energy prices and maintenance costs are putting an additional strain on the budgets of many homeowners. Nevertheless, real estate prices have risen slightly following the SNB interest rate hike. According to Wüest Partner, prices for condominiums rose by 1.1 percent and for single-family homes by 1.2 percent in the third quarter. Year-on-year, condominiums cost 6.6 percent more and single-family homes 7.2 percent more.
From 1985 to 2021, Swiss homeowners financed their house or apartment at an average rate of 4.9 percent; in the last ten years, mortgages cost just 1.9 percent. The historically low mortgage interest rates are partly responsible for the strong price increases, as Wüest Partner has calculated. One example: If mortgages had carried interest at the average 2005 rate (4 percent) from 2005 to 2021, prices for single-family homes theoretically would have risen by 50.1 percent instead of 77.9 percent, and for condominiums by 53.4 percent instead of 79.8 percent. Low interest rates accounted for one-third of the price increase. The influence of the growing population in Switzerland was even stronger, at 41 percent (houses) and 52 percent (apartments).
By raising the key interest rate, the SNB has attempted to combat inflation, which is high by our standards, without choking off the economy or risking a recession. Since the increase, the inflation rate has fallen slightly, but at 3 percent it is still well above the SNB's target of 2 percent. That's why the SNB is likely to raise the key interest rate by 50 or 75 basis points before the end of December 2022. For 2023, the experts expect further, but smaller interest rate increases. However, no one dares to make forecasts. The size of the interest rate increases depends on how the economy, unemployment and consumption develop in Switzerland. Most experts expect a recession in the euro zone, which is important for us, and this could have a negative impact on Switzerland. That is why uncertainty is high.
Uncertainty is leaving its mark on the property market and slightly curbing demand for residential property. Despite higher financing costs, energy prices and maintenance costs, demand is still higher than supply. Especially in good locations. This will not change anytime soon, as a recent survey of 844 real estate professionals by Fährländer Partner suggests:
A survey by the Swiss Homeowners Association confirms these findings. Of the 240 property experts surveyed, 40 percent expect prices for condominiums to rise and 50 percent expect prices for single-family homes to increase. Mainly because building land is scarce and therefore expensive. Although demand has weakened slightly in the last twelve2 months, demand for residential property in Switzerland is still significantly greater than supply.
If interest rates rise more sharply and more and more homeowners reach their financial limits, property prices could fall. The European Central Bank, which is struggling with 10 percent inflation, is warning of corrections in the property market, and the SNB is not ruling them out.
Forecasts are difficult. Especially when they concern the future. This is especially true for long-term forecasts about property prices in Switzerland. Nevertheless, the property experts at Wüest Partner have taken a look into their crystal ball. In their negative scenario - severe recession, sharp drop in immigration and high vacancy rate - single-family homes lose 14 percent and condominiums as much as 22 percent in value. But if the economy returns to decent or even strong growth, home prices could rise by 17 to 30 percent or more.
14 to 22 percent loss in value is a lot. In the last ten years, however, real property prices in Switzerland have risen by 40 percent or more, depending on the region. That puts the loss into perspective.
Home ownership is becoming more expensive. At 3.08 percent (market average), a fixed-rate mortgage with a ten-year term cost two and a quarter times as much on November 14, 2022, as it did a year ago. That's lower than the imputed interest rate of 4.5 or 5 percent that many banks use for their affordability calculations. Still, you should budget carefully and factor in higher living and housing costs if you want to take out (or renew) a mortgage. In uncertain times, banks look more closely and want to minimise their risks. That's why it makes sense not to push your financial envelope and go to your financial limits. With our mortgage comparison, you can compare different models and combine the most attractive offers.
In «Mortgages: Interest Rate Development in the Next 12 Months (October 2022)» read what you can do if you want to take out a mortgage and expect interest rates to rise. Currently, homeowners are taking out more Saron mortgages than fixed-rate mortgages.
Demand is greater than supply even after the key interest rate hike. Especially in good locations. However, buyers have become more price-sensitive and are critically scrutinising sales prices because they do not want to go to their financial limits for financing. That's why there are fewer, but still enough serious interested parties, and their decision-making process takes a little longer. This means that you need more patience and may have to make small concessions on the purchase price. Especially if you want to sell quickly. With our neutral property valuation, which is based on transaction prices of comparable houses and apartments, you can find out how much your home is worth. And with professional sales documentation, you increase your chances of selling.
Of course, you can sell your house or apartment yourself. But if the interested parties negotiate longer and harder, a realtor is worth considering. On the one hand, they take a lot of the work off your hands, from the valuation to the change of ownership in the land register. On the other hand, they know the market and are likely to sell your house or apartment faster and at a better price than you. A reputable realtor charges two to three percent of the selling price as a fee. If they sell your house or apartment for 1.25 million instead of 1.2 million francs, the investment has more than paid off for you.