At the beginning of March 2020, mortgage interest rates nearly matched their all-time historical low of August 2019. Since then, interest rates have climbed significantly. As a whole, the coronavirus is creating an insecure interest environment and the outcome is difficult to predict.
Overview of historical mortgage interest rates
From November 14, 2018 until August 19, 2019, mortgage interest rates slid consistently before reaching a historical low. The average interest rate for 5-year fixed rate mortgages (FRMs) fell from 1.19% to 0.92% per annum. The average interest rate for 10-year FRMs fell from 1.70% to 1.01% per annum.
Mortgage interest rates climbed slightly between August 19, 2019 and January 3, 2020: The average interest rate for 5-year FRMs climbed to 0.97% and those of 10-year FRMs climbed to 1.13%. After that, rates dropped again until the beginning of March 2020.
On March 5, 2020, the average interest rate for 5-year FRMs was 0.93% and that of 10-year FRMs was 1.02% per annum – just above the all-time historical low of August 2019.
The expected lowering of interest rates by central banks in response to the coronavirus crisis was one factor which contributed to the low interest rates. Until very recently, market participants expected the crisis to result in notably lower interest rates.
Mortgage interest rates turn mid-crisis
Mortgage interest rates climbed slowly up until March 15, 2020. Rates spiked significantly on March 16, 2020 – the day after the US Federal Reserve Bank announced the lowering of its interest rate to between 0% to 0.25% per annum.
The Federal Reserve’s decision was not able to stop the stock market’s plunge triggered by coronavirus crisis. The effect has been a loss of trust on the part of market participants in the ability of central banks to turn markets around on their own. So far, the Swiss National Bank (SNB) has refrained from lowering its interest rates.
As a result, average Swiss mortgage interest rates climbed to 1% per annum for 5-year FRMs and 1.2% for 10-year FRMs. Average interest rates have climbed sharply from their positions in early March, and are already higher than the mortgage interest rates we saw at the start of January 2020.
Impact of the coronavirus crisis on the interest environment
“In Switzerland too, the coronavirus crisis poses an increasingly greater economic risk – and may also lead to another strengthening of the Swiss franc,” says Benjamin Manz, CEO of the independent Swiss online comparison service moneyland.ch.
“The chaos currently dominating markets makes it difficult to predict how mortgage interest rates will develop over the coming months.”
There are factors which could cause interest rates to continue to shoot up – such as a major inflation. On the other hand, there are factors which could push mortgage interest rates downwards again – such as the unlikely event of the SNB lowering its interest rates.
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