Mortgage interest rates: interest rate forecast and trend

Do you have questions about mortgage interest rates? We can help. Here you’ll find everything you need to know about this topic.

The current interest rate environment

Historically speaking, we are currently in a normal interest rate environment with a key interest rate of 1.00 percent. The period from 2008 to 2022 was shaped by falling and sometimes even negative key interest rates, while the key interest rate rose as high as 1.75 percent in 2023.

The trend reversal towards higher interest rates began in 2022 when inflation rose following the coronavirus pandemic and due to the Russian attack on Ukraine. In order to curb inflation, the Swiss National Bank (SNB) raised the key interest rate five times until it reached 1.75 percent in June 2023. In 2023, inflation fell to below 2 percent, which corresponds to the price stability range defined by the SNB. This enabled the SNB to lower the key interest rate three times by 0.25 percentage points each time in March, June and September 2024, bringing it down to its current level of 1.00 percent. 

The key interest rate is the interest rate through which central banks influence the behavior of commercial banks. After all, banks also have to keep borrowing money. The level of the key interest rate therefore has a significant impact on the level of mortgage interest rates.

Interest rate forecast: further interest rate cuts by the SNB in the next six months

Status as per 29 October 2024

Following the interest rate cut by the Swiss National Bank (SNB) at the end of September, yields on 10-year Swiss government bonds moved sideways, while yields on shorter-term bonds fell slightly. A similar trend was observed for mortgage interest rates, with longer-term rates decreasing less than shorter-term rates.

The SNB is expected to cut its key interest rate again twice by 25 basis points each time in December 2024 and March 2025, which would bring the interest rate level to 0.5%. These additional interest rate cuts can be explained by the assumption that Swiss inflation will fall well below the 1% mark in 2025 and by the more uncertain economic outlook for the eurozone, and therefore also for Switzerland.

The capital market is already anticipating a further fall in the SNB’s key interest rates over the next 12 months. If the SNB does indeed cut interest rates, this should come as no surprise to the capital market and should not lead to any major changes in interest rates.

Longer-term yields on Swiss government bonds will therefore probably move sideways over the next few quarters. The same applies to longer-term mortgage interest rates. A slight rise in interest rates on shorter-term government bonds and mortgage interest rates is a possibility. Mortgage interest rates linked to SARON are likely to fall further in the next few quarters.

Long-term interest rates in percent

Interest rates fluctuate repeatedly over the course of time. This can be due to a variety of factors. The last interest cycle occurred in 2022 and was marked by the following events:

  • In response to strong inflation following the pandemic and due to Russia’s war in Ukraine, the SNB – like other central banks – began raising its key interest rate in 2022. This led to a sharp rise in the yields of bonds.
  • To curb higher levels of inflation, the SNB continued to raise key interest rates in 2023, while bond yields remained high. In the course of 2023, inflation eased significantly. Yields began to fall sharply at the end of 2023 as the markets anticipated future rate cuts. The SNB reduced its key interest rate three times by 0.25 percentage points each time in March, June and September 2024.

 

Interest rate forecast in figures

Rates

Rates

28.10.24

28.10.24

31.12.24

31.12.24

30.06.25

30.06.25

31.12.25

31.12.25

30.06.26

30.06.26

Rates

SARON

28.10.24

0.95

31.12.24

0.75

30.06.25

0.50

31.12.25

0.50

30.06.26

0.53

Rates

Swap 3 years

28.10.24

0.33

31.12.24

0.51

30.06.25

0.54

31.12.25

0.56

30.06.26

0.61

Rates

Swap 5 years

28.10.24

0.39

31.12.24

0.58

30.06.25

0.59

31.12.25

0.61

30.06.26

0.65

Rates

Swap 10 years

28.10.24

0.55

31.12.24

0.69

30.06.25

0.70

31.12.25

0.70

30.06.26

0.75

What’s next for mortgage interest rates?

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How the mortgage interest rate affects your mortgage

The mortgage interest rate is one of the key factors when deciding on a mortgage. It affects the monthly payments as well as the total cost of your mortgage.

Inflation reached over 3 percent at the end of 2022 and in early 2023. Interest rates also rose at the same time, leading to higher mortgage rates. As a rule, the higher the interest rate on bonds, the higher the mortgage interest.

Inflation has now fallen to between 1.0 and 1.5 percent. This has allowed the SNB to significantly reduce the key interest rate, which is also reflected in much lower mortgage interest rates  – both at the short end and at the long end of the interest curve.

These economic factors affect mortgage interest rates

Mortgage interest rates in Switzerland depend on a variety of factors. We provide you with an overview.

Despite basic knowledge of these factors, it is advisable to rely on well-founded analyses by financial institutions.

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How interest rates affect your mortgage model

When choosing the right mortgage strategy, there are numerous factors to consider.

The most important aspects include:

The current interest rate situation determines the starting position and the amount of mortgage interest when you take out a fixed-rate mortgage. With a SARON mortgage, on the other hand, you finance your home with a market-oriented interest rate that varies as interest rates change.

Interest rate forecasts help when creating scenarios showing how high your future payments will be. The table below provides an initial idea of which type of mortgage could be suitable for you at current interest rates.

Interest rate level

Interest rate level

Fixed-Rate Mortgage short

Fixed-Rate Mortgage short

Fixed-Rate Mortgage medium

Fixed-Rate Mortgage medium

Fixed-Rate Mortgage long

Fixed-Rate Mortgage long

SARON Mortgages

SARON Mortgages

Interest rate level

High

High

Fixed-Rate Mortgage short

suitable under certain conditions

Fixed-Rate Mortgage medium

not suitable

Fixed-Rate Mortgage long

not suitable

SARON Mortgages

suitable

Interest rate level

Decreasing

Decreasing

Fixed-Rate Mortgage short

suitable under certain conditions

Fixed-Rate Mortgage medium

not suitable

Fixed-Rate Mortgage long

not suitable

SARON Mortgages

suitable

Interest rate level

Normal

Normal

Fixed-Rate Mortgage short

suitable

Fixed-Rate Mortgage medium

suitable

Fixed-Rate Mortgage long

suitable

SARON Mortgages

suitable

Interest rate level

Rising

Rising

Fixed-Rate Mortgage short

suitable under certain conditions

Fixed-Rate Mortgage medium

suitable

Fixed-Rate Mortgage long

suitable

SARON Mortgages

suitable under certain conditions

Interest rate level

Low

Low

Fixed-Rate Mortgage short

suitable under certain conditions

Fixed-Rate Mortgage medium

suitable

Fixed-Rate Mortgage long

suitable

SARON Mortgages

suitable

Your personal mortgage profile describes your risk capacity and your risk tolerance. If, for example, you attach great importance to security and a fixed budget, your mortgage profile will be completely different from that of a person who actively follows interest rate developments and has financial reserves. You will probably sleep better with a fixed-rate mortgage because you will know exactly how much interest you will pay for a specific period of time.

Individual influences for borrowers

Factors such as the type of loan and the term of a mortgage can be chosen individually. This will of course affect the amount of mortgage interest, depending on the size and type of mortgage. This also depends heavily on the creditworthiness of the mortgage borrower and the value and location of the property.

The better you understand your own financial possibilities, the higher your chances of getting the best-possible mortgage interest rate.
Your UBS mortgage team

The creditworthiness is based on the financial situation of the potential borrower. Before buying a house, the question arises as to how much equity you can contribute – as a rule, at least 20 percent of the property value is required.

The ratio between equity and mortgage is called loan-to-value. If you contribute more equity, this can have a positive impact on the interest rate. The better you understand your own financial possibilities, the higher your chances of getting the best-possible mortgage interest rate.

Tips for mortgage borrowers

We now know that mortgage interest rates are influenced by various factors. The question arises as to how best to keep an eye on developments in order to react in time. Here are some tips.

FAQ

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