Mortgage borrowers can save thousands of francs if they know how to take advantage of fluctuations in interest rates or the competition among providers. (Image: Shutterstock.com/Andrey Popov)
The second corona wave is slowing the forecast recovery of the global economy in 2021. Comparis provides a forecast on the development of mortgage interest rates for 2021 and comes to the conclusion that mortgage borrowers can save a lot if they know how to take advantage of fluctuations in interest rates or the competition among providers.
The outbreak of the corona pandemic in March 2020 caused the benchmark interest rates for ten-year fixed-rate mortgages to rise from the record low of 0.98% to 1.20%. Since then, interest rates on the most popular mortgage in Switzerland have been in a range of 1 to 1.15%. The target interest rate is currently 1.05% (as of December 15, 2020).
“The benchmark interest rates for a ten-year fixed-rate mortgage should be between 0.9 and 1.2 percent in 2021,” predicts Comparis financial expert Frédéric Papp. He sees the benchmark interest rate for five-year fixed-rate mortgages between 0.7 and 1 percent.
The European Central Bank (ECB) and the European Union have decided to support the economy with aid loans and additional central bank money worth billions of euros. “Against this background, interest rate hikes and a strong surge in inflation appear unlikely,” says Papp. And the hands of the Swiss National Bank (SNB) are tied under these premises. Mortgage interest rates would thus remain at an attractively low level.
Favorable constellations for mortgage borrowers
Mortgage borrowers are nevertheless well advised to keep a close eye on the mortgage market because, according to Comparis, favorable constellations are constantly emerging:
Appetite for certain terms: There are always phases in which providers offer significantly better conditions for certain terms than for other terms. Independent mortgage brokers are very close to the mortgage lenders and know promptly which provider is currently having an “action”. Basically, insurers and pension funds tend to offer the best conditions for long terms. As a rule, banks offer the cheapest interest rates for short and medium terms.
Take advantage of swap rate fluctuations: Banks also refinance mortgages on the international capital market via the so-called swap market. Falling swap rates make refinancing easier. Banks can pass on part of the cost advantage in the form of lower mortgage interest rates.
“The imponderables of the economic and monetary policy consequences of the corona pandemic will continue to cause nervousness on the capital markets in 2021. Changes of +/- 30 basis points in the ten-year swap rate are quite possible,” said Papp.
Competition is getting tougher: In the current low interest rate environment, mortgages are an attractive asset class for banks, insurance companies and pension funds. The competition has therefore become more intense and is putting pressure on mortgage interest rates. For customers of HypoPlus customers, the average interest rate offered for a ten-year fixed-rate mortgage in 2016 was 1.2%. Interest rates below 1% are standard these days and go down to 0.61%.
The drivers of competition are basically two factors: On the one hand, it is mainly regional, Raiffeisen and cantonal banks that generate a large part of their income from the mortgage business. The interest margin has decreased over the years. This can only be compensated for by expanding the mortgage business. “On the other hand, the persistent negative interest rates are driving more and more investors, namely insurers and pension funds, into the mortgage asset class,” says Papp.
Interest rates are moving closer together:A ten-year fixed-rate mortgage is available from 0.61%. A five-year mortgage is available from 0.54%. The interest premium is only 7 basis points, the yield curve is extremely flat. Linking the interest to 10 years is cheaper than ever before, relative to shorter terms. Five-year fixed-rate mortgages are currently at a similar level to Libor and Saron mortgages.
Don’t accept the first rate that comes your way: The difference between the shop window rates (target rates) and the best negotiated rates is still significant. Under no circumstances should mortgage borrowers accept the first rate offered by the house bank.
An example: the window rate (ten years) is 1.05%; The interest rate best negotiated by HypoPlus is 0.61%. With a mortgage of 850,000 francs, this results in savings of 37,400 francs over the entire ten-year term.
But not everyone gets these conditions. But according to Comparis, interest rate differentials of 0.2 to 0.3% are absolutely feasible. When added to the mortgage amount and the entire term, mortgage borrowers save almost CHF 13,000 a year, even with a mortgage that is “only” 15 basis points cheaper.
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