In June 2022, the moneyland.ch Swiss mortgage index reached its highest level in over ten years with the average interest rate reaching 2.20 percent for two-year FRMs, 2.65 percent for five-year FRMs, and 3.08 percent for 10-year FRMs. Swiss mortgage interest rates retreated in July, but have climbed steadily since the middle of August.
New high for two-year mortgages
Short FRMs with two-year terms currently average 2.44 percent interest per annum, marking a new high. The interest rates of five-year and ten-year FRMs average 2.59 and 2.90 percent respectively, which puts them too within easy reach of a ten-year high.
SARON mortgages are still cheap
The interest rates of SARON mortgages are composed of the Swiss Average Rate Overnight (SARON) reference rate plus a margin added by the lender. The SARON rose when the Swiss National Bank (SNB) announced its key interest rate adjustment on June 16, but it has remained negative. When the reference rate is negative, the interest rates of SARON mortgages are made up solely of the lender’s margin, so the impact of the key rate change on SARON mortgages has remained small.
But things will likely look different after the SNB announces its decision on key interest rates on September 22, 2022. If the key rate is increased by half a percentage point or more, the SARON will become a positive rate. “It is now very likely that the cost of SARON mortgages will go up,” believes moneyland.ch analyst Felix Oeschger.
More rate hikes ahead
The US Federal Reserve will decide on its key reference rate on the coming Wednesday, and the SNB will announce its decision several days later. It is expected that the interest rate will increase, and this expectation has already been priced into mortgage interest rates. Most market observers expect the SNB to raise its key interest rate by 0.5 or 0.75 percentage points. Some speculate that the rate may be changed by a whole percentage point. A move like that could push Swiss mortgage interest rates even higher.
Whether mortgage interest rates will continue to climb in the mid-term depends primarily on how inflation rates develop. “As long as central banks are unable to reign in the high inflation, we can expect financial policies to continue tightening, and mortgage rates continue to go up,” says Oeschger. But there are many uncertainties. The threat of a European recession, for example, could push central banks to slow their rate hikes.
More on this topic:
Compare Swiss mortgages now
Swiss mortgage interest rates overview (German PDF)
Swiss mortgage index (German PDF)
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