Mortgages

Mortage Barometer for the first quarter of 2017 – mortgage rates show little movement

ANALYSIS
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Mortgage rates remain low. Source: iStock

The mortgage rates for fixed-rate mortgages in Switzerland barely changed during the first quarter of this year. After the historic low that was reached last autumn, the situation seems to have settled down for the time being. 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.

There were virtually no changes to interest rates for fixed-rate mortgages during the first quarter of this year. Compared to the previous quarter, rates for ten-year mortgages dropped by 0.03 percentage points and now lie at 1.59 per cent. Demand for longer fixed terms fell for the first time in 18 months, to the benefit of short-term and medium-term mortgages. These were the results of the Mortgage Barometer provided by comparis.ch. Up until the end of March, it was possible to negotiate ten-year fixed-rate mortgages at 1.0 to 1.2 per cent.

Deceptively quiet on the interest rate front

Interest rates for five-year and one-year fixed-rate mortgages didn't alter much either during the first quarter, remaining steady at 1.1 and 1.0 per cent respectively. However, this period of calm in the mortgage market is deceptive. Although there are signs on the European market that the economy is picking up again, the European Central Bank (ECB) is not expected to make any concrete rate changes. It was only recently that the ECB announced that its key interest rates will remain unchanged.

This means that the Swiss National Bank is unlikely to have much scope for adjusting interest rates. “We are assuming that mortgage rates will not change significantly during the coming months,” says Marc Parmentier, banking expert at Comparis. “However, that could change quite quickly depending on the outcome of the election in France and how Brexit unfolds.” It also remains to be seen what Trump's economic policy will actually look like. “Protectionist measures by the USA would be associated with downside risks for Europe, and for export-based economies in particular,” adds Parmentier.

Long mortgage terms lose out

For the first time in 18 months, demand for short-term and medium-term mortgages is on the up again. At the end of the year, these mortgage types accounted for 1.2 and 11.3 per cent of the market respectively, but by the end of the first quarter these figures had risen to 3.1 and 14.6 per cent. Bucking the trend of recent months, market share for long-term mortgages fell from 87.5 to 82.3 per cent.

This shrinking demand for long mortgage terms comes as a surprise. Banking expert Parmentier explains: “It’s possible that the notion of low mortgage rates has become embedded in customers’ minds. Because they expect interest rates to remain low for some years to come, some borrowers may have deliberately chosen shorter-term mortgages with lower interest rates.”