We’ve been waiting for the turnaround in interest rates for years – now it’s here. Since then, the topic of mortgages has been hotly debated. The demand for residential property is still unabated at the moment. But customers are now opting for mortgages with shorter terms.
The era of low interest rates seems to be coming to an end. Even the European Central Bank is heading towards its first rate hike in eleven years. The European currency guardians act comparatively late.
No slowdown
Even before the Swiss National Bank (SNB) surprisingly increased its key interest rate in mid-June, mortgage interest rates in Switzerland had clearly begun to rise. However, banks in Germany are not yet feeling the effects of a slowdown in the mortgage business, according to a survey by the AWP news agency.
Raiffeisen is particularly in focus. The banking group grants almost every fifth mortgage in Switzerland. There is still nothing to indicate a major decline in mortgage demand, she said when asked. The dream of owning your own home seems intact even after the rise in interest rates – at least for those who can afford it.
It sounds similar at the other institutions surveyed by AWP, namely the Zürcher Kantonalbank (ZKB), the Basler Kantonalbank (BKB) and the Hypothekarbank Lenzburg. He has not observed a slowdown in business that is directly related to the SNB decision, says Markus Stocker, head of financing business at ZKB, for example.
Customers want shorter transit times
What has changed, however, are the runtimes. After the interest rates for long-term mortgages have increased in recent weeks, customers are now increasingly asking for shorter maturities because they have become cheaper, says Rolf Bienenblust. He sits on the management board of Hypothekarbank Lenzburg and is responsible for risk control at his institute.
It sounds similar at BKB. “Some time ago, most opted for a 10-year fixed-rate mortgage, but now we’re seeing a trend towards shorter maturities,” says a spokeswoman. According to the institutes surveyed, customers are now also focusing more on Saron mortgages.
Mortgage brokers such as Moneypark and financial advisors such as VZ VermögensZentrum are also observing this trend. Short-term money market mortgages are still available at attractive conditions, they explain. And although the SNB is expected to raise interest rates further in the near future, money market mortgages should remain attractive, emphasizes Moneypark CEO Martin Tschopp.
situation could become uncomfortable
“It pays off to finance the property with low-cost money market mortgages for as long as possible,” adds Adrian Wenger from VZ VermögensZentrum. Then, he explains, the situation could become uncomfortable for some private homeowners. In theory, all mortgage holders should be able to pay interest of 4 to 5 percent, explains Wenger.
“Due to a lack of discipline in the household budget, this might not really be the case for some,” he says. An increase in interest rates for fixed-rate mortgages could mean that some people can only afford their house with difficulty or not at all. On the other hand, demand for new mortgages is also likely to decrease.
there is uncertainty
At least in theory, this should cause real estate prices to fall again, since demand for homes should decrease. However, there is still hardly any sign of this. In fact, the price level for homes in Switzerland remains at a very high level. “The pandemic has further fueled demand, but supply is stagnating and in some cases even declining,” says Moneypark CEO Tschopp.
Mortgage expert Wenger adds that there is a certain sense of uncertainty among customers in the home ownership sector. “People are taking a little more time with the purchase decision.” However, the most important price factors such as immigration and the economy are still intact. According to the real estate rating portal Realadvisor, the prices for houses between April and June 2022 rose by 1.6 percent compared to the previous quarter and for apartments by 1.9 percent.
Less competition for banks
In the case of investment properties, the situation is somewhat different to that of homes. Rising interest rates have the effect of lowering the price of these properties more quickly. Because for large pension funds, for example, which have increasingly pushed their way into the real estate market in recent years due to the investment crisis, there are more and more other investment opportunities. “The relative attractiveness of such investments in comparison with fixed-interest bonds has decreased as interest rates have risen,” explains Raiffeisen.
According to VZ expert Wenger, some insurance companies and pension funds have therefore withdrawn from the mortgage business. They would offer fewer or no more mortgages. “That’s why the banks have less competition.”
Not better margins
It is questionable whether this change in the market will again create room for higher margins at the banks. The financial institutions themselves, however, wave a hand in this regard. The surveyed institutes unanimously said that no improvement in margins was expected.
It is true that the margins for the active interest in the mortgage business would probably increase slightly in the medium term, according to the Hypothekarbank Lenzburg. “However, following the higher interest rate level, sooner or later the interest paid on deposits, for example on savings deposits, is likely to rise,” emphasizes a member of the management board. “Overall, we therefore do not assume that we will be able to increase interest margins significantly.”
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