Mortgages

Latest Mortgage Barometer Q4 2018 – significant change in benchmark rates for 10-year fixes

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

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.

At the end of the fourth quarter of 2018, benchmark rates for ten-year fixed-rate mortgages were 1.46% on average. This represents a significant decrease of 16 basis points compared to the third quarter. Rates for long-term mortgages have thus now returned to the level recorded at the end of 2017.

Data from Comparis partner service HypoPlus shows that customers with an excellent credit standing were able to take out ten-year fixed-rate mortgages at a rate of 0.99%. Such low rates have not been achieved for at least two years.

Lowest rate for medium-term mortgages

Following a slight increase in the benchmark rates for five-year mortgages to 1.13% in the previous quarter, they fell again in the fourth quarter of 2018. At 1.04%, these interest rates have returned to the all-time low they achieved in 2017. Interest rates for short repayment terms decreased by one basis point to 0.95%.

 

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Renewed demand for short terms

The drop in demand for fixed-rate mortgages with long terms identified in the third quarter was less pronounced in the final quarter of 2018. With a share of some 78%, this type of mortgage remains the most popular. After rising appreciably to almost 18% in the third quarter, the proportion of demand for medium-term mortgages fell to 17.4%.

The lower demand for long-term and medium-term mortgages has worked in favour of short-term mortgages (1 to 3 years), whose share rose considerably from 3.6% to 4.8%.

“In our view, the marked increase in demand for short-term mortgages comes as a result of a slower rise in key interest rates,” explains Comparis financial expert Frédéric Papp, adding that the macro-economic climate had become increasingly volatile during the course of the past year. “We expect the issuing banks to be less hasty in raising interest rates than we originally thought,” says Papp.

Although short-term mortgages are attractive at the moment because of their low interest rates – averaging 0.95% – Papp feels that borrowers opting for these terms run the risk of paying higher rates when they have to renew their mortgages in three years at the latest.

 

Rates have probably hit rock bottom

Until mid-October, benchmark rates for fixed-rate mortgages were on the rise. The average rate for a ten-year fix was 1.67% at that time. Since then, rates for all repayment terms have been decreasing again. According to Papp, one reason for the rate adjustment in the fourth quarter of 2018 is the downward revision of economic growth forecasts for 2018 and 2019 in Switzerland and the European Union.

He believes that the constant rise and fall of mortgage rates is set to continue. “There are currently many economic and political uncertainties influencing the financial markets,” says Papp. Forecasts by the World Bank indicate that the economy is cooling in all major economic regions.

According to Comparis, despite adverse political and economic circumstances, interest rates may well be as low as they can go. “The likelihood of interest rates going up is greater than another significant downwards adjustment,” says Papp. “Anyone about to take out a mortgage should therefore think very carefully about their own attitude to risk,” recommends the expert. Given these premises, risk-averse borrowers would be in the perfect position to lock in these rates for a long period.

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. Demand for the different repayment terms was determined based on 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 April 2019.

Mortgage Barometers from previous quarters

Mortgage Barometer for the third quarter of 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.

Mortgage Barometer for the second quarter of 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. 

Mortgage Barometer for the first quarter of 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.

Mortgage Barometer for the fourth quarter of 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.

Mortgage Barometer for the third quarter of 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.

Mortgage Barometer for the second quarter of 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.

Mortgage Barometer for the first quarter of 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.

Mortgage Barometer for the fourth quarter of 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.