In the Swiss mortgage market, the trend towards long maturities is strengthening, as the current Comparis Mortgage Barometer shows. Many property owners are protecting themselves from distortions in the capital markets by switching to fixed-rate mortgages.
The benchmark rates for long-term fixed mortgages have been rising significantly since the beginning of the year. This is shown by data from HypoPlus, the mortgage specialist of the Comparis Group. "Inflation and possible impact of war in Ukraine on central bank decisions in U.S. and EU currently worry many property owners. They are protecting themselves from distortions in the capital markets by switching to fixed-rate mortgages", observes Comparis financial expert Leo Hug. Remarkable, he said, is the demand for 15-year mortgages, which has hardly been seen in recent years. In his opinion, the newly emerging mortgage offers without the early repayment penalty clause may also have contributed to the increased demand.
Central banks in a dilemma
Continued rise in commodity prices leads to higher inflation expectations. According to Comparis, this causes an upward pressure on mortgage rates in the mortgage market, especially in the long maturities. The U.S. Fed and the European Central Bank ECB would therefore have to fight inflation with interest rate hikes, Hug explains. However, due to the Ukraine war, economic growth is also expected to cool down. Raising interest rates too quickly could stall economic growth. In his opinion, the central banks are in a new phase of their permanent balancing act.
Maturities in comparison
Higher interest rate differential to the swap market
Due to the narrow leeway of central banks Saron mortgages are unlikely to jump in price for the time being. Nevertheless, according to Comparis, they are losing popularity in the current political and economic environment. Increasingly, mortgage borrowers prefer the budget security of long-term mortgages instead of exposing themselves to the increased volatility of the interest rate markets, according to HypoPlus data.
This marks the end of a multi-year phase of rock-bottom rates for fixed-rate mortgages: in mid-May 2019, the banks' ten-year refinancing rates – known as swap rates – slid into negative territory on a sustained basis, falling to their lowest level of minus 0.69% by mid-August 2019. Since then, they have been trending upward, reaching a high on 21. March 2022 the level of 1.71%.
Mortgage market has become more competitive
During the interest rate dives, the mortgage market has become more competitive. The margin between banks' ten-year refinancing rates and mortgage rates was still 1.19 percentage points in mid-May 2019. Today, following the return to higher yields, the bank margin for ten-year mortgages has shrunk to 0.97 percentage points.
"Competition among mortgage lenders has gotten tougher in the past three years. On the one hand, the increased transparency thanks to comparison platforms has contributed to this. On the other hand, the increased management of the mortgage market by investment foundations, pension funds, and insurance companies has increased the pressure on mortgage banks", says Hug. However, the remaining difference of 0.44 percentage points between the benchmark rate and HypoPlus' top rate also showed that mortgage borrowers still had room for negotiation.