The SNB makes a surprising cut to its key interest rate of 0.5 percentage points

The SNB already lowered its key interest rate by 0.25 percentage points in March, June and September 2024. Now, in a surprise move, the SNB lowered its key interest rate by another 0.5 percentage points in December, mainly to counteract the lower inflation outlook. In addition, the SNB has not ruled out further cuts in the key interest rate into negative territory. In this way, it aims to ensure price stability in the medium term.

Any changes to the key interest rate affect mortgage rates and therefore also the demand for mortgages. Mortgage interest rates have already fallen due to the SNB’s announcements. Long-term fixed-rate mortgages are currently as expensive as SARON mortgages. Swiss Life provides an overview of the key issues surrounding the key interest rate cut.

What will happen next to the key interest rate?

The SNB has not yet announced any further interest rate cuts at its press conference. However, if the situation requires, it does not rule out negative interest rates either in order to prevent the Swiss franc from becoming even stronger or to ensure price stability in the medium term.

Swiss Life expects the SNB to reduce the key interest rate again by 0.25 percentage points to 0.25 percentage points at its next meeting when it assesses the monetary policy situation in March 2025. Swiss Life currently does not expect any further interest rate cut thereafter. If the SNB cuts its key interest rate again in the coming months, interest rates on SARON mortgages will also fall further. The development of medium to long-term interest rates is currently associated with increased uncertainty. Swiss Life assumes a sideways movement in this regard.

How can property owners benefit from the fall in interest rates?

The latest rate cut will have a direct impact on SARON mortgages. Borrowers with a SARON mortgage can look forward to paying less interest. SARON mortgages are now again as expensive as fixed-rate mortgages. Borrowers should now carefully look at the pros and cons of SARON and fixed-rate mortgages in order to select a mortgage solution that is best for their own financial situation and meets their individual needs.

With Swiss Life, you can extend your expiring mortgage early up to 18 months prior to the end of the term. The interest surcharge for early extensions is still very low for many terms or is zero in some cases.

Should I wait before extending my mortgage?

There is no general answer to this question. Whether a mortgage should be extended early depends on the expected interest rate trend for the central banks, market participants’ expectations and the borrower’s individual financial situation.

Assuming that current interest rates will continue to fall and you are prepared to accept a certain amount of fluctuation in the interest you pay, it may be worth waiting for the time being, or taking out short-term mortgages.

However, if you want security, your financial situation would not allow you to pay more interest or if you expect interest rates to rise, you should consider extending the mortgage early via a fixed-rate mortgage with a relevant term. It may be worthwhile extending your mortgage early because fixed-rate mortgages already partly reflect the lower interest rates and the interest surcharge for early extensions is very low.

For new mortgages, what types are currently recommended?

This question depends in particular on the individual borrower’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. In addition, long-term fixed-rate mortgages are currently almost as expensive as SARON mortgages. So why not secure an attractive interest rate for the next few years and get rid of any uncertainty? 

If the borrower is financially able to tolerate certain fluctuations and assumes that the SNB will lower key interest rates further, shorter terms and the addition of SARON mortgages may pay off.  

What else should I keep in mind as a mortgage borrower?

It is always a good idea to get a personal consultation on the topic of mortgages. The experts at Swiss Life will walk you through every market situation and support you throughout the entire financing process, offering expert advice on residential property and mortgages. This will help you have enough money to buy your dream home in a self-determined manner.