Borrowers need not fear an immediate explosion in interest rates

Central banks around the world are announcing imminent rate hikes. Accordingly, this should also threaten Switzerland. Does this mean the end of the dream of owning your own home?

the essentials in brief

  • Interest rates will soon be raised in the US and the euro zone.
  • According to one economist, the SNB is also likely to follow suit sooner or later.
  • However, borrowers should not expect major extremes.

Global inflation rates are rising and rising. In the USA, for example, the economy grew by 5.7 percent last year and by 5.4 percent in the euro zone.

A development that is increasingly worrying the currency watchdogs. They no longer consider an interest rate hike in the current year to be out of the question, as do local citizens. So they fear for their dream of owning their own home.

But is Switzerland really considering raising interest rates? Yes, says economics professor Philipp Valta. “In my opinion, Switzerland will not be able to completely escape the increased inflation expectations and rising interest rates in neighboring countries and in the USA.” But it will probably be a while before it really gets that far.

Have you taken out a mortgage in the last ten years?

Swiss banks are increasing rates for fixed-rate mortgages

There are already initial reactions from financial market participants, as Valta notes. Accordingly, yields on 10-year federal bonds have risen to 0.27 percent in the last two weeks after years of being in the red.

And the first Swiss banks also increased their interest rates on fixed-rate mortgages at the beginning of the week. At the Luzerner Kantonalbank, for example, a 5-year fixed-rate mortgage now costs 1.4 percent instead of 1.21 percent.

For borrowers, this means higher interest payments, explains Valta. Compared to the years 2013, 2015 and 2018, the expected interest rates are “still at a very low level”.

So the dream of owning a home was by no means shattered, at least not in the next few months and a year or two. “If, for example, someone has to renew a 10-year mortgage from 2012 soon, then the conditions today are no worse than they were 10 years ago,” emphasizes Valta. And that is likely to remain the case in the near future – despite possible interest rate hikes.

More on the subject: