Mortgages

Mortgage Barometer Q1 2019 – mortgage rates break psychological barrier

ANALYSIS
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The latest mortgage rates and how they have changed in recent quarters. Source: iStock / in4mal

Benchmark rates for five-year fixed-rate mortgages slipped below 1% for the first time. Ten-year fixes now also cost less. This is revealed by the Mortgage Barometer from comparis.ch.

Benchmark rates for ten-year fixed-rate mortgages reached an all-time low of 1.20% at the end of March 2019, 26 basis points lower than the previous quarter. Data collected by independent mortgage broker and Comparis partner HypoPlus shows that customers with an excellent credit standing can even achieve a rate of 0.70% with some skilful negotiation.

Benchmark rates for five-year fixed-rate mortgages have also dropped. Punching through the psychologically important 1% mark, they fell to 0.97% at the end of March. Once again, customers with an above-average credit standing should be able to secure a five-year fix for much less, with rates available from just 0.41%. Similarly, benchmark rates for two-year fixed-rate mortgages have fallen to their lowest level ever. However, at 0.92%, they are only slightly less than the average rate for medium-term mortgages.

 

How do these rate changes affect you? Calculate your personal interest rate now.

Look beyond interest rates

Clearly, mortgage rates are continuing their downward trend. As a point of comparison: last October benchmark rates for ten-year fixes were 1.62% and those for five-year and two-year fixes were 1.13% and 0.96% respectively.

If you took out a ten-year fixed-rate mortgage for 500,000 francs in October 2018, you would pay 8,100 francs in interest each year. If you took one out now, you would pay just 6,000 francs. Over ten years, this adds up to a difference of 21,000 francs. “Mortgage borrowers should, however, look beyond mortgage rates. When choosing a mortgage, it is equally important to consider your willingness and ability to take risks, and how much flexibility you need,” says Frédéric Papp.

Increased competition between lenders

According to the Comparis financial expert, there are various factors influencing this pressure on mortgage rates. First, the European Central Bank (ECB) announced at the beginning of March that key interest rates would remain at 0% until at least 2020. This means that the Swiss National Bank (SNB) will continue to have its hands tied. “It is highly unlikely that the Swiss National Bank will hike interest rates before the ECB, so any interest rate turnaround in this country will be deferred further into the future,” says Papp.

Secondly, competition is growing appreciably. “Insurers and pension funds are increasingly challenging banks by offering mortgage rates that are in some cases significantly lower. They need to increase their clout, because as long as the investment crisis persists, they rely primarily on property investment and mortgages to produce reasonable profits,” he explains.

“Some five-year mortgages are even cheaper than Libor mortgages,” observes Papp. This is due in part to intense competition. The main lenders of Libor mortgages are banks. However, insurers and pension funds, which operate with lower margin expectations than the banks, are now also muscling in on the market.

Greater demand for long-term fixed-rate mortgages

Compared to the previous quarter, demand for long-term fixed-rate mortgages (7 to 15 years) rose to some 78.3% (+0.5%). Demand for medium-term mortgages (4 to 6 years) also climbed by 0.5% to 17.9%. By contrast, short-term mortgages (1 to 3 years) registered a drop in demand of 1% to 3.8%.

According to Papp, this shift in demand is mainly due to the negligible difference in interest rates – just a few basis points – for short-term and medium-term mortgages.

 

Data sources

Interest rate information is based on the benchmark rates of over 50 lenders. They are updated daily and published in the mortgage rate overview. Experience shows that interest rates offered in mortgage quotes are usually below the official benchmark rates. The requested terms were determined based on the mortgage applications submitted by potential borrowers following an independent consultation with HypoPlus, a partner service of comparis.ch. The next Mortgage Barometer will appear in the middle of July 2019.

Mortgage Barometers from previous quarters

4th quarter 2018 – significant change in benchmark rates

Some benchmark interest rates for fixed-rate mortgages dropped significantly in the fourth quarter of 2018. Ten-year fixes witnessed the biggest decrease. Demand for short-term mortgages is surprisingly high. This is revealed by the Mortgage Barometer from comparis.ch.

3rd quarter 2018 – shift to medium-term mortgages

Interest rates for fixed-rate mortgages increased slightly in the third quarter of 2018, with the steepest climb occurring in September. Coinciding with this rise, demand for long repayment terms eased off for the first time since the end of 2017 – with demand for medium-term mortgages surging in its place. This is revealed by the Mortgage Barometer from comparis.ch.

2nd quarter 2018 – interest rate increase has not yet come about

There were virtually no changes to interest rates for fixed-rate mortgages during the second quarter of 2018. The economic and political developments of recent months suggest that interest rates in Switzerland will continue to remain low. Demand for long repayment terms has further increased. 

1st quarter 2018 – mortgage rates have risen appreciably

Interest rates for fixed-rate mortgages increased during the first quarter of 2018. For medium and long repayment terms, rates even reached a two-year high in mid-February. As borrowers generally expected rates to rise further, demand for long-term mortgages grew and has now returned to the level it was the previous year.

4th quarter 2017 – signs point to an increase

At the beginning of the year, rates for fixed mortgages remained steady at around the level of the previous quarter. Since then, signs that rates are set to rise have been multiplying. This is confirmed by the interest rate swap for ten-year fixes. It has been rising sharply since mid-December, which indicates that hedging costs are continuing to go up. Demand for medium-term mortgage terms grew appreciably in the last quarter.

3rd quarter 2017 – mortgage rates stay low

Interest rates for fixed-rate mortgages remained more or less the same during the third quarter of 2017. Surprisingly, despite rates remaining at an all-time low, demand for very short terms increased at the expense of medium terms.

2nd quarter 2017 – mortgage rates have dropped

The benchmark interest rates for fixed-rate mortgages dropped slightly during the second quarter of this year. Nevertheless, demand for fixed-rate mortgages with long terms was still comparatively low. In contrast, demand for medium terms rose appreciably, even though the interest rates for this segment witnessed the smallest reduction.

1st quarter 2017 – mortgage rates show little movement

The mortgage rates for fixed-rate mortgages in Switzerland changed only slightly during the first quarter of 2017. After the historic low that was reached in the autumn of 2016, the situation now appears to be settling down. However, with the forthcoming elections in France, continuing Brexit developments and the still vague status of US economic policy, there is cause for some uncertainty.

4th quarter 2016 – mortgage rates rise again

After interest rates for fixed-rate mortgages hit an all-time low last autumn, it seems that the tipping point has been reached on the mortgage market. Rates for fixed-rate mortgages rose in the fourth quarter of 2016 and have now returned to the level recorded in early 2015.