Significant change in benchmark rates for 10-year fixes

The Comparis Mortgage Barometer for the 4th quarter of 2018


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.

In 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. 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. Experience shows that interest rates offered in mortgage quotes are usually below the official benchmark rates. The next Mortgage Barometer will appear in the middle of April 2019. 


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