Inflation and the raising of the key interest rate by the Swiss National Bank (SNB) on June 16, 2022, are affecting the mortgage market. The advertised guide rates for Swiss fixed-rate mortgages have seen unapparelled increases since the start of the year. Fixed-rate mortgages (FRMs) have not been this expensive since July, 2011.
Although mortgage interest rates went up after the SNB’s decision, it is important to remember that an eventual change in financial policy had been anticipated. “The only surprises were the timing and the scope of the changes made by the Swiss National Bank. The majority of market participants also seem surprised by the resolve which the SNB showed in tightening the reigns,” says moneyland.ch analyst Felix Oeschger.
Mortgage interest rates have more than doubled
On January 1, 2022, the moneyland.ch Swiss mortgage index showed average interest rates of 1.01 percent per annum for five-year FRMs and 1.26 percent for 10-year FRMs. As of June 20, 2022, the average interest rates are already 2.57 percent per annum for five-year FRMs and 2.99 percent for 10-year FRMs. Those figures show that since the start of the year, interest rates for five-year FRMs have more than doubled, with a climb of 1.56 percentage points. Over the same period, 10-year FRMs climbed by 1.73 percentage points – an increase of 137 percent.
Short-term mortgages show sharper reactions
Short-term mortgages have also been affected by rate hikes. For example, the average interest rate for two-year FRMs more than doubled, rising from 0.93 percent to the current 2.12 percent. The cost of three-year and four-year FRMs have also shot up since the beginning of the year. The average annual interest rate climbed from 0.94 percent to 2.30 percent for three-year mortgages, and from 0.98 percent to 2.46 percent for four-year mortgages.
Money market mortgages are not yet strongly affected
The Swiss Average Rate Overnight (SARON) climbed from -0.70 to -0.21 percent per annum when the SNB changed its key interest rate. The interest rates of SARON mortgages are made up of the SARON rate plus a markup added by the lender. When the SARON is negative, the interest rate is comprised entirely of the lender’s markup. Because the SNB’s interest rate is still negative even after the 0.5-percent upwards adjustment, SARON mortgages have only been moderately affected. “But this will change when the SNB’s key interest rate becomes positive,” says Oeschger.
Outlook
Inflation in May 2022 was 2.9 percent higher than in May 2021. That was far above the SNB’s target inflation rate, albeit tame when compared to inflation rates in other western countries. Whether or not the SNB will manage to put the brakes on inflation is heavily dependent on global developments. “Most likely, Switzerland too will see drastic hikes in mortgages interest rates as a result of measures taken to curb inflation,” predicts Oeschger.
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