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The Comparis Mortgage Barometer for the 2nd quarter of 2019
At slightly over 1%, benchmark rates for ten-year fixed-rate mortgages are lower than ever, and within touching distance of the rates for five-year and two-year fixes. This is revealed by the Mortgage Barometer published by comparis.ch.
Benchmark rates for ten-year fixed-rate mortgages continued to edge lower in the second quarter of this year. The benchmark rate was 1.10% at the end of June 2019, compared to 1.20% at the end of March. A slight dip was seen in the benchmark rate for five-year deals, which fell by two basis points to 0.95%. Two-year fixes now also cost less, with the benchmark rate now 0.88%. At the end of March of this year it was still 0.92%.
Comparis finance expert Frédéric Papp expects the more expensive lenders to adjust their benchmark rates downwards, which will maintain the pressure on average benchmark rates. In the coming quarters, the psychological barrier of 1% could be breached with respect to ten-year fixed-rate mortgages.
How do these rate changes affect you? Calculate your personal interest rate now.
Borrowers with a good credit standing are being offered ten-year fixes at rates starting as low as 0.70%, with five-year deals starting at 0.44%. Even the rates for 15-year fixed-rate mortgages are currently below 1%. This is shown by the data of independent mortgage broker and Comparis partner HypoPlus.
Yield curve flattening
The benchmark rates for ten-year fixed-rate mortgages are within touching distance of the rates for five-year and two-year fixes. Until now, customers have always paid a significant risk premium for long-term mortgages.
By way of comparison: at the end of the second quarter of 2018, a ten-year fixed-rate mortgage at a rate of 1.56% cost 45 basis points more than a five-year fix. One year on, the difference is only 15 basis points. Furthermore, the interest rate difference between two-year and ten-year mortgages shrank from 60 basis points at the end of June 2018 to just 22 in the current period. The difference between two-year and five-year fixed-rate mortgages fluctuated between 5 and 17 basis points within the one-year period.
|Q2 2019||Q1 2019||Q4 2018||Q3 2018||Q2 2018|
|Difference between 5-year and 10-year mortgage*
|Difference between 2-year and 10-year mortgage*
|Difference between 2-year and 5-year mortgage*
*in basis points
Long-term mortgages outstrip Libor mortgages
Mortgage rates for a ten-year fixed-rate mortgage, for example, are primarily determined by the ten-year swap rate. The latter is once again in negative territory, after last having been so in 2015 and 2016. The swap rate for a five-year term has almost invariably been below 0% since the beginning of 2015.
Banks do not use negative interest rates in their calculation of mortgage rates. Instead, they cap them at 0% and apply their margins on top. Since both five-year and two-year swap rates are currently in negative territory, it is unlikely that the difference between five-year and two-year fixed-rate mortgages will shrink much further.
In many cases, fixed-rate mortgages can even be obtained more cheaply than Libor mortgages. The rate for a Libor mortgage, based on the three-month Libor and a three-year contract, is currently 0.59%. However, borrowers with a good credit standing are being offered five-year fixes at rates starting as low as 0.44%, while seven-year deals are available from 0.57%.
Where are interest rates heading?
The interest rates for mortgage loans are now lower than ever. However, managing to borrow at just the right time is still a matter of luck. Influenced by the whims of economic development, interest rates can move up or down at any time.
Subdued economic forecasts in the USA and Europe in particular currently give little cause to suppose that interest rates will rise in the near future. There is also little need for action with respect to the rate of inflation in the euro zone. This rate remains at 1.2% (as of June 2019) and is therefore significantly lower that the inflation target of the European Central Bank (ECB), set at just below 2%.
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. The requested terms were determined based on the 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 October 2019.