«Mortgage rates? We’re still at low levels»

Mortgage interest rates have been rising in Switzerland for several weeks. Faced with inflationary fears as well as the shift in tone on the monetary policy by the ECB, they have reached their highest level since 2018. According to Moneyland’s findings, at the beginning of February, the benchmark rates for five-year mortgages were at 1.28% and for ten-year mortgages at 1.55%.

«Inflationary pressure in the U.S. and Europe is prompting central banks to take the first steps toward a more restrictive monetary policy,« comments Claudio Saputelli, head of the Swiss and global real estate division at UBS. The expectations are for four rate hikes this year by the U.S. Fed and a tightening by the ECB as well. «The economy is growing and the pressure on prices is undeniable. The central institutions try not to underestimate the cost of living: when it starts to rise, in fact, it is difficult to keep it under control».

SNB to the rescue

This is not particularly good news for borrowers, not least in the housing market. If the cost of money rises, the prices of real estate loans increase. And in view of the surging real estate prices in recent months, the SNB had already decided to intervene two weeks ago by reactivating the countercyclical capital buffer for banks, which are required to hold additional capital (amounting to 2.5%) for home mortgages. «The measure was taken to stabilize the financial sector in the event of a market correction,« explains Saputelli, «in a context in which mortgages are still granted by calculating a theoretical charge of 5% on the loan and ancillary charges equal to 1% of the purchase price, in addition to depreciation where appropriate. By our calculations, the reintroduction of the buffer has led to a price increase of 10-15 basis points, which is very little and does not affect the balance of supply and demand. So much so that the banks did not put up too much resistance to this decision».

According to SNB figures, there are currently over 1,100 billion Swiss francs worth of mortgages open in Switzerland, which is almost double the amount of fifteen years ago and far more than the annual GDP of approximately 750 billion. «This volume does not cause much concern because it grows at the same rate as Swiss assets - continues Saputelli -. Additionally, in Switzerland having mortgage debts is fiscally advantageous, so it is physiological that they increase. For the economy, the problem will be rather that if rates rise, there will be less savings available for consumption».

No shocks

In principle, however, UBS analysts do not expect a shock to the housing market related to the rate hike. «Mortgage rates are still at very low levels. If the SNB were to end the negative interest rate chapter, then pressure on the demand for rental properties is to be expected. As well as a normalization of the balance in the real estate market, which has been growing for years thanks to very favorable framework conditions,« Saputelli points out.

Rents in recovery

The latest figures calculated by Homegate in conjunction with the ZKB show that rents for new and re-rented apartments (existing contracts are not included in the statistics) rose very slightly in January, by 0.3% in a monthly comparison. On a yearly basis the increase is 1.3%. Regional differences are marked. While Ticino (+0.6% per month, +0.9% per annum) moves substantially in line with the average, the same cannot be said for Graubünden, which recorded a drop of -2.2% compared to December, against an increase of 2.1% per annum.

The situation in the cities is also varied: Lugano shows +0.1% and +2.7% over the twelve-month period, with an annual increase similar to those of Zurich or Bern. Geneva, Lausanne and Lucerne, on the other hand, show a decrease of more than 1%. «Rents in Switzerland have been declining since 2016 - Saputelli emphasizes - They are under pressure due to the excess of construction activity generated precisely by negative rates, the greater demand for home ownership and the decline in population. In Ticino, for example, from 2013 to 2020 there was a real collapse in the migration balance. But if mortgage rates were to lower the demand for property, rents could benefit», he concludes.