Mortgage closings for longer terms are increasing in the third quarter of 2021 compared to the previous quarter. This is shown by the current Comparis Mortgage Barometer. This development is driven, among other things, by concerns that interest rates could rise in the coming months.
The third quarter of 2021 stands out for a shift in maturity preference. Thus, the average term of the mortgages brokered increased compared to the previous quarter from just under seven to a good eight years. This is shown by the data of HypoPlus, the mortgage specialist of the Comparis Group. "Long-term mortgages are increasingly being taken out because customers fear higher interest rates. They want to secure the current low interest rate level, in some cases also with a 15-year mortgage," says Comparis financial expert Frederic Papp.
The concern of rising mortgage rates is an expression of higher inflation expectations, and higher inflation expectations cause swap rates to rise. The swap rate defines what fixed interest rate banks are willing to pay for maturities of 1 to 30 years. Since banks also refinance through the swap market, it helps set the direction of mortgage rates (see chart, below).
In July and August, the ten-year CHF swap rate fell from 0.02 to -0.17 percent (20. August 2021). During this period, the benchmark rate for ten-year mortgages also fell from 1.19 to 1.10 percent. The swap rate subsequently climbed back to 0.12 percent (29. September 2021) and the average price for a ten-year mortgage also rose again to 1.19 percent (29. September 2021).
Swap interest rate vs. Indicative rate (10 years)
Unevenly long spits
In contrast to banks, pension funds, investment foundations and insurance companies do not refinance via the swap market. Moreover, they do not offer savings deposits and consequently do not have to cross-finance them at the expense of mortgage debtors. So the spits of the banks are not the same length compared to pension funds, insurance companies and investment foundations. "This would only change if banks were to pass on the negative interest rate to their customers across the board, even for smaller deposits," says the expert.
Pension funds, insurance companies and investment foundations offer very good conditions, especially for long-term mortgages, due to their investment horizon of decades. They often have a higher inflow in market constellations with rising interest rate expectations. This was also the case in the third quarter. The share of mortgages brokered by HypoPlus to pension funds, insurance companies and investment foundations had increased from 15% in the previous quarter to over 40% in the third quarter of 2021.
Savings of 24,000 francs possible
Indicative interest rates are averages. Who negotiates or lets negotiate, gets according to Comparis a ten-year mortgage with average loan-to-value and affordability still for less than 1%. If the property can be financed with a first mortgage, the interest rate can be up to 0.4 percentage points lower, as a recently published Comparis analysis showed. The annual savings for a ten-year mortgage of 600,000 Swiss francs is therefore 2,400 Swiss francs per year or 24,000 Swiss francs over the entire term of the mortgage.
Saron mortgages are often marketed as a very low-interest alternative to fixed-rate mortgages. A comparison with fixed-rate mortgages is still worthwhile, according to Comparis. Currently, there are five-year mortgages from 0.5%. That's just how much a Saron mortgage costs. Saron mortgages are also usually tied to maturities. The so-called framework term is usually three or five years. Who wants to get out earlier, must pay an early repayment penalty. Switching to a fixed-rate mortgage during the framework term is possible, but only with the same provider.
Interest rate differentials are increasing slightly again
Comparis also calculated the average interest rate differences between ten-, five- and two-year mortgages in the third quarter and drew a comparison with the same quarters of the previous year. Accordingly, in the third quarter of 2018, the interest rate differential between ten-year and five-year mortgages was still 46 basis points (bp). On average, a ten-year mortgage was 61 basis points more expensive relative to a two-year mortgage at the time. One year later, the long-, medium- and short-term interest rates have converged significantly. Since the 3. A normalization of interest rates can be seen in the first quarter of 2020.