For the first time in 15 years, the Swiss National Bank (SNB) has raised the key interest rate by half a percent point to -0.25 percent. The Federal Reserve and the European Central Bank (ECB) have also raised their key interest rates or have announced their intention to do so in the coming quarters due to the high inflation of recent months. Property owners are now wondering what impact this will have on their mortgage. We provide an overview of the most important issues related to the current rate rise.
As a result of the sharp rise in global inflation and the rise in key interest rates, mortgage rates have risen to their highest level since 2011. This development is changing the demand for mortgages. Customers tend to opt for shorter terms when interest rates are high in order to benefit from lower finance charges for short-term mortgages. Demand for SARON mortgages has also increased.
What is a SARON mortgage?
The SARON mortgage has no fixed term and no fixed interest rate. The variable interest rate is based on the SARON (Swiss Average Rate Overnight). The SARON is calculated on the basis of completed transactions and binding quotes (purchase and sale prices) in the Swiss money market. A SARON mortgage is right for you if you want to benefit from interest rates remaining low or falling. With a SARON mortgage you participate in the current interest rate trend.
1. What can property owners do now?
If you, as a homeowner, are worried about the current interest rate situation, you could consider extending your current mortgage.
Should you expect a further rise in mortgage interest rates, you can extend your maturing mortgage with Swiss Life up to 18 months before maturity.
2. What are the main concerns at the moment?
The high mortgage rates are increasing housing costs for property owners, which could reduce the attractiveness of home ownership compared to renting.
Homeowners are also concerned about the possibility of real estate prices correcting to the downside, and additional amortisation becoming necessary.
Those planning to buy their own home are worried about construction delays and price increases due to the tense situation on the raw materials market. Delays may cause the timing of the capital requirement to be unclear, in addition to the uncertain trend in interest rates.
3. How will the situation develop? What are the options if the mortgage interest rate continues to rise?
Swiss Life expects the Swiss National Bank (SNB) to raise the key interest rate by 1% to 0.75% by the end of the year. This would also lead to rising interest rates for SARON mortgages for the first time after years of remaining constant. As long as global inflation remains at this high level and the central banks actively try to combat it with their monetary policy, interest rates will remain higher than in previous years.
If you expect a further rise in interest rates on your mortgage, it is a good idea to extend the expiring mortgage early via a fixed-rate mortgage with the corresponding term.
4. What can I do if the affordability of the current mortgage (not a fixed-rate mortgage) is no longer ensured due to the rise in interest rates?
Banks and insurance companies generally use an imputed interest rate of 5% to calculate affordability. As long as interest rates do not rise above these values or there are new FINMA regulations for the application of higher imputed rates of interest, mortgagors’ affordability should be ensured.
5. Is it currently advisable to extend mortgages early?
There is no general answer to this question. Whether or not you should extend your mortgage early depends on the expected interest rate trend and the mortgagor's individuel financial situation.
Assuming that current interest rates will no longer rise sharply and you are prepared to accept a certain amount of fluctuation in the interest burden, it may be worth waiting for the time being, or taking out short-term mortgages.
However, if you expect a further rise in interest rates, want security on your mortgage or your financial situation does not permit a further rise in the interest burden, you should consider extending the mortgage early via a fixed-rate mortgage with a corresponding term.
6. In the case of new business: what types of mortgage are recommended if the key interest rate is raised?
This question depends in particular on the individual mortgagor’s risk appetite and financial resources. If the need for security prevails or there is little room for financial manoeuvre, then it is advisable to take out a fixed-rate mortgage.
If the mortgagor is financially able to tolerate a certain amount of fluctuation, shorter terms and the addition of SARON mortgages may pay off.
7. Why is advice so important at the moment?
Mortgage products are not able to influence market fluctuations, but they can cushion them. Our Swiss Life experts support you in all market situations, whether low or high inflation.
We assist you throughout the financing process and provide you with expert advice on home ownership and mortgages, enabling you to live in your dream home in a self-determined manner.
How can I extend my mortgage early?
Most banks and insurance companies offer the early extension of mortgages between 6 and 24 months before maturity. To extend it, you take out the new mortgage on a specified date, thereby securing the current interest rate, regardless of how high or low the interest rate on the maturity date of your current mortgage.
What is the key interest rate?
The key interest rate is a monetary policy instrument and is set by the central banks. It is the interest rate at which commercial banks can refinance themselves with the central banks.
Obtain advice now
We will explain the pros and cons of SARON, fixed-rate and green mortgages in a consultation and determine which product and term best suit you and your financial needs.