The benchmark interest rates for fixed-rate mortgages dropped slightly during the second quarter. 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. This is revealed by the latest data from the Comparis Mortgage Barometer.
The most significant reduction in interest rates was observed for short-term and long-term fixed-rate mortgages. At the end of the second quarter, the benchmark rates for 10-year fixed-rate mortgages were 1.53 per cent. In other words, interest charges were 0.06 percentage points less than in March. Interest rates for fixed-rate mortgages with terms of up to three years even fell below 1.0 per cent for the first time. Minimal change was recorded for rates for 5-year fixes, which more or less remained static at around 1.1 per cent.
European Central Bank holds the cards
The slight fall in interest rates had already been observed in the first quarter, and further accentuated in the second. “However, the latest statements by ECB President Mario Draghi on positive developments in the eurozone triggered another slight increase in interest rates at the end of June”, says banking expert Marc Parmentier, reiterating that interest rates remained nonetheless at historically low levels. “If you have good negotiating skills and the bank sees you as a lucrative customer, you should have no problem securing a 10-year fixed-rate mortgage at 1.2 per cent,” says Parmentier.
Given the buzzing economy in the eurozone at present, many experts expect the European Central Bank to announce at the end of the year that it will gradually scale back its bond purchase programme. This would allow mortgage rates to rise again. “In light of this, it may well be worth opting for a longer-term mortgage agreement right now,” says Parmentier. Yet demand for long mortgage terms does seem to have cooled off somewhat.
Medium terms on the rise
Although demand is still greatest for fixed-rate mortgages with long terms, medium terms are becoming increasingly popular. Demand for these terms continued to climb proportionately in the last quarter – from 14.6 to 17.6 per cent. Long-term mortgages, in contrast, saw a drop from 82.3 to 79.4 per cent. “Since the beginning of the year, we have observed that medium terms have been growing in popularity at the expense of long terms,” states Parmentier.
He explains this further reduction in demand for long terms as follows: “Long mortgage terms are very popular in Switzerland because the Swiss value continuity and the ability to plan. However, mortgage borrowers seem to have adopted the view that interest rates will remain low “forever”, making it unnecessary to lock themselves in to higher rates for a period of, say, ten years. Borrowers are increasingly opting for very cheap five-year mortgages – in the hope that they will still be able to get a suitably low-cost mortgage deal in 2022. We will have to wait and see whether this decision will pay off.”
Short-term mortgages with terms of less than four years remain too uncertain a prospect for the Swiss. So despite relatively large reductions in interest rates in recent months, demand for short-term mortgages remains low – with a share of around three per cent.