Long-term mortgages are likely to remain stable in the coming months. Interest rates on money market mortgages, on the other hand, are likely to fall. With the expected further easing of monetary policy, they would trend downwards again.

Inflation has fallen significantly in Switzerland in recent months. This has allowed the Swiss National Bank (SNB) to lower the key interest rate by 25 basis points to 1.5% at its monetary policy assessment on March 21. At the same time, it did not rule out a future easing of monetary policy. UBS experts expect the SNB to make two further interest rate cuts of 25 basis points each in June and September 2024. The SNB key interest rate would therefore stand at 1% at the end of the year.

Confederation yields likely to fall only slightly

Government bond yields have fallen in anticipation of lower key interest rates in the run-up to the SNB's decision. As market expectations already reflect three interest rate cuts by the SNB in 2024, UBS experts see only slight potential for a further decline in Confederation yields. Over the next twelve months, they expect 10-year Confederation bonds to trend sideways around the current level of 0.7%. Yields on government bonds with short maturities, on the other hand, are likely to fall.

Money market mortgages are likely to become cheaper

The majority of newly concluded money market mortgages are currently likely to cost between 2.1% and 2.6%, which is similar to the previous year. The SNB's key interest rate cut in March made money market mortgages cheaper. The two expected interest rate cuts from June 2024 are likely to lead to a further reduction. In the prime rate scenario, money market mortgages are likely to cost between 1.6% and 2.1% as at March 2025.

The majority of 10-year fixed-rate mortgages are currently likely to cost between 1.9% and 2.3% per year, around 70 basis points less than a year ago. In the base scenario, the experts expect interest rates on fixed-rate mortgages with long terms to remain stable overall in the coming months.

There are various financing options

According to the interest rate forecast (base scenario), the UBS experts estimate that a staggered 3-year fixed-rate mortgage followed by a money market mortgage is the most favorable financing option over a term of 10 years. The interest cost advantage of this variant is around 10% of the cumulative interest payments of a 10-year fixed-rate mortgage. In the high-interest scenario, however, this variant is likely to lead to massively higher interest payments. In this scenario, the 10-year fixed-rate mortgage is clearly the most favorable financing option. If, on the other hand, the key interest rate soon slips back into negative territory in a low interest rate scenario, the greatest savings can be achieved with a staggered money market mortgage followed by a 10-year fixed-rate mortgage.

Interest rate trends harbor risks

With the two further interest rate cuts expected in 2024, the SNB is likely to end its cycle of interest rate cuts in September. In UBS's base scenario, the SNB key interest rate is therefore likely to remain at 1% in the coming years. However, if another price shock were to occur, or if the ageing population or a reversal in the globalization trend were to lead to structurally higher inflation, interest rate cuts by the SNB would be a distant prospect. In such a high interest rate scenario, the experts anticipate a higher SNB key interest rate in the long term. As a result, market interest rates would also be higher than today. If, on the other hand, there is a global recession and a strong appreciation of the Swiss franc, the SNB is likely to ease its monetary policy faster than expected. In this low interest rate scenario, the SNB would lower its key interest rate into negative territory and only raise it again once the economy has recovered from the recession a few years later. Market interest rates are then also likely to fall into negative territory - at least temporarily.

Refinancing depends on risk capacity

The choice of optimal mortgage financing depends on the mortgage holder's ability and willingness to take risks. Risk-averse mortgage borrowers are more likely to take out long-term fixed-rate mortgages and should therefore expect slightly higher costs in the basic scenario. In this case, the experts recommend spreading the fixed interest rate over different terms. This reduces the refinancing risk after the individual mortgages expire. For example, anyone who had to renew their entire mortgage at the beginning of March 2023 was exposed to particularly high interest rates on fixed-rate mortgages. On the other hand, those who had financed their home purchase with different terms only extended one tranche of their mortgage at relatively higher conditions.