Mortgages

Mortgage Barometer for the fourth quarter of 2017 – signs point to an increase

ANALYSIS
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Interest rates for fixed-rate mortgages are on the rise. Source: iStock

At the beginning of the year, the 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 building. A glance at the interest rate swap for ten-year fixes confirms this. 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. These were the results of the latest Mortgage Barometer provided by comparis.ch.

Rates for ten-year fixes were 0.02 per cent lower than in the previous quarter – down to 1.45 per cent by the end of the fourth quarter. Benchmark rates for medium terms were slightly higher than in the previous quarter – lying at 1.07 per cent at the end of the third quarter, they moved up to around 1.10 per cent at the beginning of the year. The rate applied to short-term mortgages remained virtually unchanged. At the end of the quarter, it was 0.96 per cent – a mere 0.01 per cent higher than in the previous quarter.

 

More and more signs pointing to a rate increase

Given the low level of interest rates, now seems like a good time to take out a mortgage. “The rosy economic outlook for Switzerland and Europe, together with the announcement by the European Central Bank that it will gradually scale back its bond purchase programme and probably raise interest rates in 2019, could persuade the Swiss National Bank to increase its rates too in the foreseeable future,” explains Marc Parmentier, banking expert at comparis.ch.

Borrowers clearly agree with this prediction. The interest rate swap for ten-year fixed-rate mortgages has climbed steeply since mid-December, which is a sure sign that borrowers are expecting a hike in rates.

Even if mortgages are cheap to get right now thanks to low interest rates, it's still worth negotiating conditions with mortgage lenders. “Mortgages involve large sums of money. All the more reason not to settle for the first best offer you receive. At the moment, with some effective negotiation, borrowers can net themselves a ten-year fixed-rate mortgage at a rate of 1.2 per cent,” says Parmentier.

 

Shift towards medium repayment terms

Although long repayment terms are still the most popular among borrowers, their share of demand continues to drop. Compared to the previous year, demand for long repayment terms is almost ten per cent lower (pro rata), currently lying at just under 79 per cent. A year ago this number was still 88 per cent. This proportionate fall in demand occurred to the benefit of medium repayment terms, whose popularity is increasing. At the moment, 18 per cent of mortgages taken out have a medium repayment term. This represents a growth of 7.5 percentage points compared to the previous year.

Short terms have become less attractive. Demand for these repayment terms, which had increased over the course of last year, saw a slight drop in the last quarter. Three per cent of fixed-rate mortgages taken out have a repayment term of less than four years, whereas in the previous quarter, their share of overall demand was holding steady at 3.7 per cent.