In mid-February 2022, the Swiss mortgage index from moneyland.ch showed the highest interest rates since 2018, at 1.38 percent per annum for 5-year FRMs and 1.66 percent per annum for 10-year FRMs. The cost of Swiss fixed rate mortgages initially sank after Russia attacked Ukraine on February 24, sitting at 1.20 percent (5-year FRMs) and 1.55 percent (10-year FRMs) at the beginning of March. Interest rates have climbed steeply since then. FRMs with 10-year mortgage terms even reached a new high.
On March 15, 2022, the average interest rate for 5-year mortgages was 1.35 percent, and that of 10-year mortgages was 1.73 percent. That shows an increase of 0.15 percentage points (5-year FRMs) and 0.18 percentage points (10-year FRMs) over the first half of March.
Interest rate hikes are likely
Future actions by the US Federal Reserve, the European Central Bank, and the Swiss National Bank depends largely on how the Ukraine crisis develops.
“The war in Ukraine is fueling the already high inflation levels, lending weight to the case for more stringent fiscal policies and subsequently higher interest rates,” observes moneyland.ch analyst Felix Oeschger.
There are many reasons to believe that Switzerland too will soon see its guide interest rates being raised. “The high inflation in Europe and the US has the potential to drive Swiss mortgage interest rates even further,” states Oeschger.
Notable differences between lenders
Even in these turbulent times, competition in the Swiss mortgage market remains strong. Currently, the difference between the lowest and highest advertised interest rates for 5-year fixed-rate mortgages is 0.74 percentage points, with the lowest rate being 0.92 percent and the highest being 1.66 percent. For 10-year FRMs, the difference is 0.76 percent, with the lowest interest rate being 1.27 percent and the highest being 2.03 percent.
Mortgages from pension funds are cheaper
Mortgages offered by Swiss pension funds are more affordable. The average interest rate across mortgages from Swiss banks and insurance companies is 1.31 percent for 5-year FRMs and 1.73 percent for 10-year FRMs. Pension funds, on the other hand, charge an average of 1.10 percent for 5-year FRMs and 1.47 percent for 10-year FRMs. It is important to account for the fact that pension funds tend to be more restrictive with regards to accepting mortgage applications. Pension funds may only offer mortgages to their occupational pension fund participants, or offer only primary mortgages.
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