No mortgage rate shock in sight despite inflation

Even if inflation pandemics, sharply rising mortgage rates are very unlikely. (Image:

Inflation fears drove mortgage rates especially in the first quarter of 2021. Inflation rates are likely to settle around the target value in the medium term. According to Comparis, mortgage borrowers are also benefiting from this development.

Indicative interest rates for a ten-year mortgage peaked at 1.23% in March and May. In the meantime, the rate is 1.15% (as at 14. July 2021). At the beginning of the year, the value was still around 1%. On average, interest rates this year have been in the range of 0.9% to 1.2%. For medium-term interest rates, on the other hand, the upward movement was much slower. Five-year mortgages have risen by just 2 basis points in six months to 0.92% (as of 14 December). July 2021) increases in price. Comparis expects a range of 0.7% to 1% for the current year.

Pandemic-related flare-up in inflation

The beginning of the divergence between medium- and long-term mortgage rates is primarily due to increased inflation expectations, notes Comparis financial expert Frederic Papp. Expects inflation to rise even further over the course of the year. Among the causes are government aid programs for the recovery of the economy, the ultra-loose monetary policy of central banks and supply problems as a result of gaps in production chains.

Against this backdrop, a slight upward pressure is to be expected primarily for long-term mortgages. The Comparis mortgage interest rate forecast for 2021 for ten-year mortgages would therefore be extended from 0.9% to 1.3%, from 0.9% to 1.2% previously. Indicative five-year mortgage rates are likely to remain in a rate band between 0.7% and 1%.

In the medium term, however, there is unlikely to be a sustained significant increase in inflation, after which a slowdown is expected. Consequently, according to the expert, sharply rising mortgage rates are also very unlikely.

Taking advantage of interest rate fluctuations

Mortgage rates are always based on capital market rates. If swap rates fall, mortgage rates will also fall. Supposedly small interest rate differences weigh heavily in the long run, according to Comparis. Calculated on the basis of a mortgage of 750,000 Swiss francs, the savings from a mortgage that is 20 basis points (0.2%) more favorable amount to 15,000 Swiss francs for the entire term.

A comparison of capital market rates with benchmark rates for ten-year mortgages over a five-and-a-half-year period shows that competitive pressures among mortgage providers are intensifying. At the end of November 2015, the swap rate (10 years) was similar to today around 0%. At that time, however, the benchmark interest rate for a ten-year mortgage was over 1.7% and not 1.15% (as of 14. July 2021) (see table).
The table shows impressively: mortgage institutions forego margin in order to gain mortgage volume.

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