Many market participants expect an end to interest rate hikes in the near future. However, inflation is proving persistent, and the SNB is taking decisive action against it by raising interest rates. This is also having an impact on mortgages.

In March 2023, the Swiss National Bank (SNB) raised the key interest rate by 0.5 percentage points to 1.5% in its fight against inflation. This has further narrowed the spread between Saron and fixed-rate mortgages. From the end of December 2022 to the end of March, the benchmark rate for Saron mortgages rose 0.27 points to 2.17%,, while the benchmark rate for 10-year fixed mortgages fell slightly to 2.9% in the same period. Currently, the difference between Saron mortgages and 10-year fixed mortgages is still 0.74 percentage points. This is shown by data from HypoPlus, the mortgage partner of Comparis. "The interest rate development led overall to a flattening of the yield curve. In some cases, inverse interest rate structures also formed, where the interest rates for shorter-term mortgages were higher than for longer-term mortgages" explains Comparis financial expert Dirk Renkert. He justifies the current interest rate development with the market expectation of falling inflation: "Many assume that the interest rate peak has already been reached and that interest rates could even fall again soon. This is because the prices for oil and gas are currently declining compared to the previous year."

Inflation Surprisingly Rises Sharply

Indeed, the increase in the inflation rate in Switzerland to 3.4% in February came as a surprise to some market participants. They had expected a decline. "However, because of rising inflation and the simultaneous market turmoil in the wake of the collapse of Silicon Valley Bank in the U.S. and the forced takeover of Credit Suisse by UBS, the central bank is in a dilemma," Renkert knows. And he continues, "It must not neglect financial stability, but it must also pursue price stability." In addition, it must be careful not to import the increased costs of goods from abroad.

Interest rates for shorter-term mortgages likely to be raised

Due to the threat ofkey interest rate increases by the SNB, Renkert expects mortgage rates to continue to rise, especially for shorter-term mortgages. "The increase in the key interest rate to 1.5% has also pushed Saron mortgages close to 10-year fixed mortgages," he explains, warning, "Mortgage borrowers should be aware of the risks of rising interest rates when taking out Saron mortgages."

Fixed-rate mortgages provide planning security

Even if the interest rate peak is reached one day, it is by no means foreseeable when and how quickly interest rates will then fall again, Renkert continues. Unlike long-term mortgages of 10 years or longer, therefore, depending on interest rate trends and the length of the interest rate regime, the monthly burden on mortgage borrowers could become very high. "Only for those who can bear the risk and believe in falling interest rates are Saron mortgages suitable. On the other hand, those looking for planning security are probably better off with a longer-term 10-year fixed-rate mortgage," he recommends.

Rents are also on the rise

Rents account for around one-fifth of the national consumer price index. As only a small proportion of rental households will be affected by an initial increase, this effect is likely to be small for the time being. "However, the longer and more sharply mortgage interest rates are raised, the greater the risk that the reference interest rate will also continue to rise, and the more households will be affected by a possible rent increase," warns Renkert. Currently, the reference interest rate is 1.25%. "It is expected to increase by a quarter of a percentage point in June and landlords will then have a legal right to a rent increase of 3%. On top of that, there may be further increases of 1% to 2% to compensate for inflation," Renkert fears.

Data basis

The benchmark rates calculated by Comparis are published average interest rates that are still negotiable. The interest rates of the Comparis Mortgage Barometer are provided by HypoPlus, the mortgage partner of Comparis. These are based on the target rates of around 50 credit institutions.