Mortgages

Mortgage Barometer Q3 – mortgage rates kept in check as competitive pressure decreases

ANALYSIS
| By Frédéric Papp |
Source: iStock / in4mal

Mortgage rates have continued to remain steady in the third quarter of 2020. What’s more, the interest rate differences between ten-year, five-year and two-year mortgages have lessened further. Some money market mortgages are just as cheap as five-year mortgages.

From July to September 2020, the rates on ten-year fixed-rate mortgages moved in a narrow range between 1.05% and 1.12%. The sideways trend of the previous quarter is therefore continuing. Mortgage rates for medium and shorter terms are following a similar pattern. Although the coronavirus pandemic caused some upward pressure on rates in March, this has reduced again.

 

 

 

“Mortgage rates will continue to stagnate at a low level in the coming months. Apart from anything else, there is not enough competitive pressure to elicit another significant reduction,” says Comparis financial expert Frédéric Papp. According to Papp, one reason for this is that pension funds and insurance companies are currently less inclined to take on additional mortgage business. Another, he explains, is that banks have been offering mortgage rates that are virtually as low as those of pension funds and insurance companies.

Banks wary of saddling customers with negative interest rates

Mortgage rates could fall lower if banks were to pass on the negative interest rates imposed by the Swiss National Bank to a majority of savers. Banks are reluctant to take this kind of step for fear that it would panic customers into withdrawing their savings.

For Raiffeisen banks and regional and cantonal banks in particular, savings deposits are the main source of finance for mortgages.

Narrow interest-rate gap between mortgage terms

The benchmark rates for short-term, medium-term and long-term fixes converged further in the third quarter. At the end of September, the difference between a ten-year and a five-year fixed-rate mortgage was just 14 basis points. A five-year fixed-rate mortgage is only 5 basis points more expensive than a two-year mortgage.

Q3 2020 Q2 2020 Q1 2020
Q4 2019
Q3 2019
Q2 2019
10-year fixed-rate mortgage
1.05%
1.11% 1.17%
1.09% 1.05%
1.10%
Difference between 5- and 10-year fixed mortgages (in basis points)
14 16 20 16
14 15
5-year fixed-rate mortgage
0.91%
0.95% 0.97%
0.93%
0.91%
0.95%
Difference between 2- and 10-year fixed mortgages (in basis points)
19 22 28 22 18 22
2-year fixed-rate mortgage
0.86%
0.89%
0.89%
0.87%
0.87%
0.88%
Difference between 2- and 5-year fixed mortgages (in basis points)
5 6 8 6 4 7

However, these benchmark rates only represent average values. Data collected by independent mortgage broker and Comparis partner service HypoPlus shows that effective negotiating can result in much lower interest rates.

  • Ten-year fixed-rate mortgages are currently available from 0.59% for first mortgages (as at 30 September 2020).
  • Five-year fixed-rate mortgages are available for 0.54% (as at 30 September 2020).

This means that a five-year fixed-rate mortgage costs roughly the same as a Libor or Saron mortgage.

Data sources

The interest rate information in the Comparis Mortgage Barometer 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 next Mortgage Barometer will appear at the beginning of January 2021.

Mortgage Barometers from previous quarters

2nd quarter 2020 – coronavirus sends mortgage rates on a rollercoaster ride

Thanks to coronavirus, the mortgage market remained turbulent and hard to predict. At the end of the first quarter, the rates for ten-year fixes shot up from their all-time low of 0.98% to almost 1.20% within just a few days, slipping down to 1.07% in April and May. Since then, they have started to rise again. At the end of June, the benchmark rate reached 1.11% – historically a very low value.

1st quarter 2020 – sharp increase in benchmark rate for 10-year mortgages

Coronavirus is fuelling uncertainty on financial markets, and this is reflected in mortgage rates. The benchmark rate for 10-year fixed-rate mortgages has risen significantly within a short period. On 9 March, the benchmark rate for 10-year fixed-rate mortgages had reached an all-time low of 0.98%. It then suddenly rose by 21% to 1.19%, settling at 1.15% at the end of March. This is slightly higher than the rate of 1.09% recorded in the fourth quarter of 2019.

4th quarter 2019 – effect of negative rates on benchmark rates

After diving below the magic 1% mark, benchmark rates for ten-year fixed-rate mortgages have started to climb slightly once again. Negative interest rates could lead to mortgages becoming more expensive in the future. In the final quarter of 2019, the benchmark rate for ten-year fixed-rate mortgages climbed to 1.10%. This is 11 basis points higher than the record low reached in August 2019.

3rd quarter 2019 – diving below the magic 1% mark

In the third quarter, benchmark rates for ten-year fixed-rate mortgages dropped again in comparison with the previous quarter. They even fell briefly below the “magic” 1% mark for the first time. “However, there are various signs that point to mortgage interest rates reaching a floor,” says Comparis financial expert Frédéric Papp.

2nd quarter 2019 – 10-year mortgages nearly as cheap as 5-year deals

At slightly over 1%, benchmark rates for ten-year fixed-rate mortgages were lower than ever in the second quarter of 2019, and within touching distance of the rates for five-year and two-year fixes. This is revealed by the Mortgage Barometer from comparis.ch.

1st quarter 2019 – benchmark rates below 1% for the first time

In the first quarter of 2019, 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.

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.