In the current year and beyond, MoneyPark experts do not expect a further significant increase in mortgage rates. Volatility is expected to remain elevated, especially due to high inflation in the US and Europe and recession fears around the world.
The Swiss economy is weakening
The Swiss economy started 2022 positively, but the international outlook has since deteriorated. The downward trend is primarily driven by a decline in external demand and manufacturing. The indicators of the financial services and insurance sector, as well as the construction sector, are almost at a constant level. On the other hand, private consumption recorded a somewhat positive trend.
According to SECO economists, Swiss GDP should grow by around 2.6% in 2022 and by 1.9% in 2023 as the economy normalizes. Risks for the global economy are associated, in particular, with the war in Ukraine and the development of the situation in China. In addition, significant inflation in the US and other currency areas and economies, as well as possible new restrictions due to the resumption of the pandemic, are a hidden danger. These factors could lead to high volatility in the capital markets and thus have implications for the Swiss economy. SECO’s inflation forecast is 2.5% for 2022 and 1.4% for 2023.
Historic rise in fixed mortgage rates
In the first half of 2022, capital market rates surged at an unprecedented pace. This has affected fixed mortgage rates. However, in Switzerland and in Europe, key interest rates have remained low for a long time, although inflation in Europe rose sharply in the second quarter.
In the coming months, MoneyPark experts expect a significant increase in money market rates based on key central bank rates. More and more factors indicate that fixed mortgage rates have peaked and may stabilize at current levels:
- Fears of a global recession continue to grow. Further rate hikes, especially in Europe, could completely stifle the economy.
- It is becoming more and more obvious that inflation cannot be fought with a sharp increase in interest rates alone. Other factors, such as lack of energy or food, weigh too heavily on the scale.
- Over the next few months, the Swiss economy is expected to show significantly less growth than expected at the beginning of the year.
- The Swiss (residential) real estate market weathered the crisis, but prices nevertheless rose sharply, although experts believe that risk premiums will remain low.
- The reference rate for 10-year bonds rose by 200 basis points during the first half of the year. In recent weeks, it has become apparent that these rate hike projections may be overstated.
- Experts believe that the most likely scenario for the next 18 months is the stabilization of mortgage rates at the current level. Thus, interest rates will remain at historically low levels.
- However, the uncertainty that could provoke both a decrease and an increase in the rate remains.
Record house prices persist
In 2021, housing prices hit a new all-time high, driven by growing demand and stagnant property supply. This situation should not change this year. The stable value of real estate gained prominence during the pandemic, and the advent of the home office has changed the demand for housing. Peripheral properties should remain particularly attractive, and price increases in cities should be less noticeable than in recent years.
Mortgage rate determinants
Economic development and stakes around the world
As an exporting country, Switzerland is very dependent on the global economy and in particular on the EU, its main trading partner. The ECB’s monetary policy has a direct impact on the EUR/CHF exchange rate. Therefore, MoneyPark experts are also studying the situation in the EU for their forecasts.
The following indicators are relevant:
- Monetary policy of the Fed, ECB and SNB, especially in the current environment of strong inflationary trends
- Political discussions (e.g. ways out of the coronavirus crisis, trade war between the US and China, political tensions between NATO and Russia, a framework agreement between Switzerland and the EU, etc.)
- Dynamics of GDP, Inflation, Consumer Prices and Purchasing Managers’ Index
- Dynamics of the unemployment rate in Switzerland
Negative rates should soon be a thing of the past
After the 2009 financial crisis, central banks around the world cut rates sharply to stimulate the economy with cheap money. Due to (expected) rate hikes by the central bank, the end of negative rates in Switzerland is imminent after more than a decade of rule. Experts suggest that by the end of the year the key rate of the SNB will increase by 0.5%, reaching 0.25%. The sequence of events is very uncertain. Out of control inflation in Europe and the US speaks in favor of further rate hikes, at least in the short-term money market. However, the fact that the economy risks falling into a full recession if rates continue to rise plays against that assumption. Thus, forecasts are subject to many uncertainties. Experts believe that mid-term and long-term mortgage rates will stabilize at the current level, and Saron’s mortgage loans in the money market will become more expensive.