The SNB lowers the key interest rate to zero percent

The SNB lowered its policy rate at each of its last six meetings held to assess the monetary policy situation. After the latest reduction, the rate stands at zero percent. The reason for the reduction is the easing of inflationary pressure as well as the subdued economic outlook.

Any changes to the key interest rate affect mortgage rates and therefore also the demand for mortgages. Swiss Life analyses the situation and provides an overview of the key issues surrounding the key interest rate cut.

What will happen next to the key interest rate?

The current governor of the national bank, Martin Schlegel, has repeatedly emphasised that the SNB is aware of the undesirable side effects of negative interest rates and will therefore only make cautious use of them.

However, Swiss Life currently expects a further reduction of 25 basis points to follow in September, which means a return to negative interest rates. Interest rates on fixed-rate mortgages have already fallen sharply over the course of the year due to the expected key interest rate cut and the gloomy economic outlook. Swiss Life expects long-term interest rates to fall slightly again by the end of the year. The key interest rate cut directly impacts SARON mortgages, which is why their interest rate will gradually fall over the next few months.

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

Mortgage interest rates have already fallen significantly over the course of the year and are approaching their trough again. The interest rates for SARON mortgages will gradually fall again following the latest key interest rate cut, as their interest rates follow the key interest rate movements with a time lag. Should the SNB cut its key interest rate by another 25 basis points in September, as expected by Swiss Life, this does not mean, however, that SARON mortgages will also become increasingly cheaper. Many lenders will not apply a negative SARON rate. 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 changes by 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 tolerate certain fluctuations in your interest burden, it may be worth waiting for the time being or taking out a short-term mortgage.

However, if you are looking for security, if 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. An early extension can also be worthwhile because the current rates on 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, mortgage interest rates are currently bottoming out again. 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 mortgage interest rates will fall 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. Swiss Life experts support you in every market situation and throughout your entire financing process by providing expert advice on home ownership and mortgages – so you have enough money available to make your dream home a reality in a self-determined manner.