Mortgage rates break psychological barrier

The Comparis Mortgage Barometer for the 1st quarter of 2019


Benchmark rates for five-year fixed-rate mortgages slipped below 1% for the first time. Ten-year fixes now also cost less. This is revealed by the Mortgage Barometer from comparis.ch.

Benchmark rates for ten-year fixed-rate mortgages reached an all-time low of 1.20% at the end of March 2019, 26 basis points lower than the previous quarter. Data collected by independent mortgage broker and Comparis partner HypoPlus shows that customers with an excellent credit standing can even achieve a rate of 0.70% with some skilful negotiation.

Benchmark rates for five-year fixed-rate mortgages have also dropped. Punching through the psychologically important 1% mark, they fell to 0.97% at the end of March. Once again, customers with an above-average credit standing should be able to secure a five-year fix for much less, with rates available from just 0.41%. Similarly, benchmark rates for two-year fixed-rate mortgages have fallen to their lowest level ever. However, at 0.92%, they are only slightly less than the average rate for medium-term mortgages.

 

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Look beyond interest rates

Clearly, mortgage rates are continuing their downward trend. As a point of comparison: last October benchmark rates for ten-year fixes were 1.62% and those for five-year and two-year fixes were 1.13% and 0.96% respectively.

If you took out a ten-year fixed-rate mortgage for 500,000 francs in October 2018, you would pay 8,100 francs in interest each year. If you took one out now, you would pay just 6,000 francs. Over ten years, this adds up to a difference of 21,000 francs. “Mortgage borrowers should, however, look beyond mortgage rates. When choosing a mortgage, it is equally important to consider your willingness and ability to take risks, and how much flexibility you need,” says Frédéric Papp.

Increased competition between lenders

According to the Comparis financial expert, there are various factors influencing this pressure on mortgage rates. First, the European Central Bank (ECB) announced at the beginning of March that key interest rates would remain at 0% until at least 2020. This means that the Swiss National Bank (SNB) will continue to have its hands tied. “It is highly unlikely that the Swiss National Bank will hike interest rates before the ECB, so any interest rate turnaround in this country will be deferred further into the future,” says Papp.

Secondly, competition is growing appreciably. “Insurers and pension funds are increasingly challenging banks by offering mortgage rates that are in some cases significantly lower. They need to increase their clout, because as long as the investment crisis persists, they rely primarily on property investment and mortgages to produce reasonable profits,” he explains.

“Some five-year mortgages are even cheaper than Libor mortgages,” observes Papp. This is due in part to intense competition. The main lenders of Libor mortgages are banks. However, insurers and pension funds, which operate with lower margin expectations than the banks, are now also muscling in on the market.

Greater demand for long-term fixed-rate mortgages

Compared to the previous quarter, demand for long-term fixed-rate mortgages (7 to 15 years) rose to some 78.3% (+0.5%). Demand for medium-term mortgages (4 to 6 years) also climbed by 0.5% to 17.9%. By contrast, short-term mortgages (1 to 3 years) registered a drop in demand of 1% to 3.8%.

According to Papp, this shift in demand is mainly due to the negligible difference in interest rates – just a few basis points – for short-term and medium-term mortgages.

 

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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