- SNB key interest rate: interest rate cut on September 26, 2024
- Why did the SNB lower its key interest rate?
- The consequences of this interest rate cut
- The consequences for owners and buyers
- The consequences for the real estate market
- How are mortgage interest rates developing?
- Which is cheaper: fixed-rate mortgage or SARON mortgage?
- The right mortgage strategy
- Compare mortgage models and terms
SNB key interest rate: interest rate cut on September 26, 2024
In its third monetary policy assessment this year, the Swiss National Bank (SNB) cut its key interest rate by a quarter of a percentage point from 1.25 to 1.00 percent. This means that the key interest rate that determines mortgage interest rates in Switzerland fell in three steps this year from 1.75 to 1.00 percent, which was expected by all market participants. In the run-up to the decision, they were only wondering whether the SNB would cut the key interest rate by 0.25 percent or even by 0.50 percent. Most people guessed a quarter of a percentage point and were correct.
Good to know
In August, inflation fell from 2.9 to 2.5 percent in the USA and from 2.6 to 2.2 percent in the euro zone. The European Central Bank lowered the deposit rate for the first time in June and a second time in September to the current 3.75 percent, and the US Federal Reserve lowered the federal funds rate in September for the first time in five years to the current 4.75 to 5 percent.
Why did the SNB lower its key interest rate?
Inflation has fallen more than expected since the last monetary policy assessment. At that time, the SNB had assumed 1.5 percent for the third quarter. There are many indications that this forecast will be exceeded in the next few months. Due to low inflationary pressure, the SNB had enough leeway to lower the key interest rate without endangering price stability. This was confirmed by outgoing SNB President Thomas Jordan at the media conference: “Inflationary pressure in Switzerland has once again fallen significantly compared to the previous quarter. This decline reflects, among other things, the appreciation of the Swiss franc over the last three months. By easing our monetary policy, we are taking the reduced inflationary pressure into account.”
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The consequences of this interest rate cut
Since the interest rate cut was expected and many market participants expect the fourth interest rate cut this year on December 12, 2024, the money market and capital market interest rates hardly reacted to the key interest rate cut. The interest rate decision had been priced into interest rates for some time. Since the monetary policy assessment on June 20th, the interest rate index has been hypotheke.ch decreased by 0.4 percentage points from 1.99 to 1.59 percent. In his monetary policy assessment, Thomas Jordan emphasized that the National Bank will continue to closely monitor inflation developments and adjust its monetary policy if necessary to ensure that inflation remains within the range of price stability in the medium term. Your target range for the inflation rate is between 0 and 2 percent.
The interest rate index of hypotheke.ch fell from 2.48 to 1.59 percent within 365 days. With a mortgage of 800,000 francs, this means a cost reduction of 7,120 francs per year
The consequences for owners and buyers
If you have financed your home with a SARON mortgage, you benefit directly because the SARON is linked to the key interest rate. A SARON mortgage costs 1.75 percent or more (0.95 percent plus 80 to 130 basis points credit margin).
If you have financed your home with a fixed-rate mortgage or would like to finance your property purchase with a fixed-rate mortgage, little will change. The market has priced in the lower interest rates, which is why the interest rates for fixed-rate mortgages have hardly changed after the SNB decision. Since the first monetary policy assessment in 2024, mortgage interest rates have fallen significantly. For example, on September 26, 2024, a ten-year fixed-rate mortgage with UBS key4 mortgages cost at least 1.56 percent* or 34 basis points less than on March 21, 2024.
Tipp
The SARON reference interest rate is directly linked to the key interest rate and can fluctuate. SARON mortgages are therefore suitable for homeowners who can live with interest rate fluctuations and have financial flexibility. If you prefer to budget precisely in francs and centimes, you will sleep easier with a fixed-rate mortgage.
The consequences for the real estate market
The easing inflation pressure and the prospect of further falling mortgage rates (see “How are mortgage interest rates developing?”) relieve the burden on property buyers and owners who have to extend or replace their mortgage in the foreseeable future. In recent months, demand has weakened somewhat due to the gloomy economic outlook, high financing costs and high price levels. The majority of real estate experts now assume that demand and therefore prices will rise slightly again due to falling financing costs. Although prices will rise by an average of 1 to 1.50 percent in 2024, the risk of a real estate bubble is decreasing. According to UBS Real Estate Bubble Index the risk is low. The index fell from 0.95 to 0.74 in the second quarter of 2024, well below the value in the early 1990s (2.34), when real estate in Switzerland lost up to 40 percent of its value.
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How are mortgage interest rates developing?
Some market participants expected a larger interest rate cut. After the media conference, Reuters surveyed 32 financial market experts: 16 do not expect a key interest rate cut on December 12, 2024, 15 expect a reduction of 0.25 to 0.75 percent. The strength of the Swiss franc speaks in favor of a further reduction in key interest rates. In the last three months, the franc has gained 2.9 percent against the euro and 6.7 percent against the dollar. A strong franc harms export-oriented industries, while a weak franc increases the risk of higher imported inflation. The economic research center at the University of Zurich also believes that the SNB will reduce the key interest rate to 0.75 percent because inflation pressure is easing. It expects inflation to be 1.2 percent in 2024 and 0.7 percent in 2025 and 2026. Conclusion: The new SNB President Martin Schlegel will probably announce another interest rate cut on December 12th. Provided that the economic and geopolitical uncertainties do not thwart the SNB’s plans.
Our mortgage interest rate forecast until the end of 2024:
- SARON mortgage currently: SARON plus at least 0.87 (0.74) percent* credit margin | sinking
- Fixed-rate mortgage with a 5-year term currently: from 1.45 (1.75) percent* | stable
- Fixed-rate mortgage with a 10-year term currently: from 1.56 (1.79) percent* | stable
- Fixed-rate mortgage with a 15-year term currently: from 1.80 (1.96) percent* | stable
* Indicative interest rates as of September 26, 2024 at 12 p.m. The interest rates have UBS key4 mortgages based on these parameters: Canton of Zurich, loan amount 500,000 francs, affordability 20 percent, loan-to-value 50 percent, payment date September 27, 2024. These interest rates are not a binding financing offer.
Which is cheaper: fixed-rate mortgage or SARON mortgage?
According to long-term studies, money market mortgages such as the SARON mortgage have been cheaper than fixed-rate mortgages in the past. Since October and November 2023, short- and long-term mortgages have been cheaper than the SARON mortgage. This is unusual. Anyone who expects mortgage interest rates to continue to fall should take out a fixed-rate mortgage with a short term of two or three years in order to bridge the uncertainty during the expected interest rate cuts and to be able to refinance more cheaply once the term has expired.
The right mortgage strategy
It makes sense not to put everything on one card or mortgage, but rather to spread the financing across different mortgage models and terms. In this way, you spread the interest rate risk and at the same time minimize the risk of having to renew the entire amount at the most inopportune moment, for example in a period of high interest rates. UBS key4 mortgages recommends this mix:
- Stable: Finance your house or apartment with fixed-rate mortgages. Divide the amount into two tranches. For example 50 percent for 10 years and 50 percent for 15 years.
- Balanced: Finance your home with fixed-rate and money market mortgages. For example 60 percent fixed for 12 years and 40 percent with a SARON mortgage. The fixed-rate mortgage protects against rising interest rates; the money market mortgage is usually cheaper than the fixed-rate mortgage.
- Market oriented: Finance your home with money market and fixed-rate mortgages. For example 70 percent with a SARON mortgage and 30 percent fixed for 12 years. The SARON mortgage is usually cheaper than the fixed-rate mortgage, and the fixed-rate mortgage protects against rising interest rates.
Compare mortgage models and terms
How you finance or refinance your home depends on more factors than the current interest rate. Your personal and financial situation, future plans, risk capacity and assessment of mortgage interest rates play at least as important a role when choosing the right mortgage model and the right terms. If in doubt, get advice and compare offers, services and prices. The cheapest offer at first glance is not always the best offer for you.
