Demand for Saron mortgages collapses in the first quarter
Published: Thursday, Apr 18th 2024, 00:50
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The key interest rate cut by the Swiss National Bank (SNB) in March had a dampening effect on interest rates for Saron mortgages. Nevertheless, demand for this financing instrument, which is tied to the money market, plummeted in the first quarter.
The reason for this is that, despite the SNB lowering its key interest rate to 1.5 percent from 1.75 percent previously, Saron mortgages are still more expensive than fixed-rate mortgages, as the comparison portal Comparis writes in its quarterly mortgage barometer published on Thursday. While around a quarter of mortgage borrowers opted for a Saron mortgage a year ago, the figure is currently only 3 percent.
According to Comparis, Saron mortgages average around 2.1 to 2.3 percent. In contrast, 10-year fixed-rate mortgages cost around 1.7 to 1.8 percent. Even 25-year fixed-rate mortgages are already being concluded at just over 2 percent.
Fixed-rate mortgages have anticipated interest rate cuts
The benchmark rate for 10-year fixed-rate mortgages has hardly moved since the beginning of the year despite the interest rate cut. At the end of March, it stood at 2.26%, the same as at the beginning of the year. The benchmark rate for 5-year fixed-rate mortgages was 2.15 percent at the end of March, slightly higher than at the beginning of the year (2.13 percent).
According to Comparis, this is due to the fact that fixed-rate mortgages had already become cheaper at the end of last year, as key interest rate cuts were expected on the market for 2024. It was not the interest rate cut that came as a surprise, just the early timing.
While demand for Saron mortgages has therefore fallen massively, the share of fixed-rate mortgages with a medium term has increased significantly according to the mortgage barometer. Their share increased to a third, compared to around a fifth in the same quarter of the previous year.
The proportion of 10- and 15-year fixed-rate mortgages remains high, accounting for almost half of the deals observed. "In an environment of great uncertainty, fixed-rate mortgages with the longest possible term offer a high degree of planning security," emphasizes Comparis.
Further reductions necessary
In order for Saron mortgages to catch up with fixed-rate mortgages again, at least one, if not two, interest rate cuts are needed, the report continues. However, it is unclear when further interest rate cuts will follow. If inflation rises again, the time for further interest rate cuts could be postponed.
The benchmark rates calculated by Comparis are published but still negotiable average interest rates from around 30 mortgage institutions.
The Saron (Swiss Average Rate Over Night) is currently around 1.5 percent. However, the banks' interest margin is added on top of this, which according to Comparis is between around 0.6 and 1.1 percentage points.
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