As far as mortgages and general interest rate trends are concerned, Switzerland is experiencing what is no doubt a historically unique period. Over the past 30 years, interest rates have known almost only one direction: apart from a few swings, they have generally gone down. This means that financing your own home has become increasingly attractive since the 1990s.
The markets were disrupted firstly by the financial crisis of 2008, and secondly by the outbreak of the coronavirus crisis in 2020. Governments and central banks are currently trying to support companies and banks with aid packages worth billions. Interest rates rose sharply in the meantime, as some market participants attempted to cover their liquidity shortages by selling government bonds. However, this is likely to have been only a short-term phenomenon.
Leading experts are debating longer-term interest rate trends. The key question is whether a global increase in national debt and aid programs could lead to inflation and hence to rising interest rates. Scientific publications such as “low for long” (low interest rates in the long term) or “low forever” suggest a longer phase with fundamentally low interest rates. Mortgage interest rates are therefore likely to remain at a very low level for some time yet.
To put it simply, inflation or general inflation, economic development and the monetary policy of the Swiss National Bank (SNB) play a decisive role. If a bank anticipates inflation, this inflation rate is normally integrated into the interest rate. The SNB influences interest rates, and indirectly mortgage rates, via the key interest rate and the money supply.
The essential difference with Libor or SARON mortgages as an alternative is that the interest rate is variable. The interest rate is usually adjusted to the current market rate every three months. The interest rate charged to the client may vary from quarter to quarter.
Libor or SARON mortgages are the right choice if the client expects low interest rates. Generally speaking: in a “normal” interest rate environment, financing on a short-term basis is cheaper. For the simple reason that there are no costs for interest hedging. However, depending on mortgage interest rate trends, liquidity should be kept available in case mortgage interest rates rise. Ability and willingness to take risks are considered key prerequisites for financing on the basis of Libor or SARON. Anyone who opts for this type of financing should also closely follow mortgage interest rate trends.
Here you’ll find exactly the right offer – independent, fast and transparent.
Fixed-rate mortgages, on the other hand, offer interest rate hedging. But each year added to the term involves extra cost. In the current interest rate environment, this extra cost is nonetheless historically favorable. There were phases in interest rate trends when the extra cost per year added to the term was 0.2 percent, for example. Today, however, the premium for each year of additional interest rate hedging is comparatively low.
For most people, realizing their individual property dream is a major investment. Thus the desire for budget security and predictability often takes priority. These are good reasons for choosing a fixed-rate mortgage.
Anyone who prefers dynamic and flexible financing, on the other hand, should opt for a shorter mortgage term. A combination of several terms may of course also be possible, in line with the frequently quoted stock market rule: “Don’t put all your eggs in one basket.”
Living conditions must also be taken into account. If you are looking at a shorter or medium-term horizon or are considering selling your home, you should not conclude contracts with a term of eight or ten years. The unplanned cancellation of a long-term fixed-rate mortgage can be expensive under certain circumstances.
There will be no such thing as a mortgage at zero cost in Switzerland either. Banks make sure that interest rates cover the risks and costs. However, interest rates for acquiring residential property will most likely remain attractive for many years to come.
