The Swiss National Bank (SNB) has announced a decision to lower its key interest rate to 1.25 percent, which will have substantial implications for the real estate market and investments. This reduction comes in response to moderate economic growth in Switzerland, expected increases in unemployment, and the impact of a stronger franc.
Economists suggest that inflation in Switzerland remains under control, leading to the SNB’s decision to lower the key interest rate. However, this reduction may not result in significant decreases in fixed-rate mortgage interest rates as the market had already priced it in. Fixed-rate mortgages are popular among homeowners looking for security and predictability in their mortgage payments as the interest rate and term are locked after signing the contract.
With this decision, SARON overnight rate is also falling, making SARON mortgages more attractive compared to fixed-rate mortgages. Money market mortgages like SARON mortgages are susceptible to interest rate fluctuations meaning borrowers may pay more or less depending on market conditions. Despite this shift in attractiveness, the interest rate difference between SARON and fixed-rate mortgages remains small.
The reference interest rate, which influences rent levels in Switzerland, is not expected to decrease significantly due to the method used to calculate it. Many fixed-rate mortgages with low interest rates are expiring potentially leading to higher rates upon renewal while SARON mortgages may see lower rates but this is not anticipated to cause a substantial drop in the reference rate.
The upward trend in Swiss real estate prices may be tempered by SNB’s interest rate cuts making real estate more affordable and potentially increasing demand. Banks are likely adjusting their rates on accounts following this cut with expectations that most institutions will reduce their rates as a result. The SNB’s decision has significant implications for various sectors and highlights the interconnected nature of the Swiss economy.
In conclusion, SNB’s decision
