Why should mortgage rates go up

Corona causes mortgage interest rates to rise

The corona virus is causing a lot of nervousness in the financial markets. This is also reflected in the mortgage interest, as the Comparis financial experts determine. The benchmark interest rate for ten-year fixed-rate mortgages has risen significantly within a short period of time.

"The much feared black swan has appeared - disguised as a coronavirus. It forces the global economy into a forced break and causes sharp price fluctuations on the stock exchanges," says Frédéric Papp, financial expert at Comparis. States around the world are trying to provide aid packages worth several thousand billion francs avoid a prolonged recession. Various central banks, at the forefront the American Federal Reserve, have also lowered key interest rates, in some cases significantly.

The coronavirus leads to investment freezes among private, commercial and industrial players. This leaves deep traces in companies' income statements and explains, among other things, the sometimes severe price drops on the stock exchanges. The rampant uncertainty in the financial markets is also having an impact on mortgage interest rates. The benchmark interest rate for ten-year fixed-rate mortgages hit a record low of 0.98% on March 9. Then it suddenly turned up to 1.19%. As of the end of March, the benchmark rate is now 1.17%. For comparison: in the fourth quarter of 2019 it was 1.09%. The benchmark interest rate for five-year fixed-rate mortgages is also above the level at the end of 2019, two-year fixed-rate mortgages have become slightly more expensive.

Refinancing costs have risen

"The significant increase in interest rates is also due to increased refinancing costs," explains Papp. The development of the ten-year interest rate swap (CHF) was still -0.61% on March 9th. It is currently -0.19%. The return of the ten-year-old Swiss has also increased, from around -0.9 to currently a good -0.37%. The coronavirus makes an interest rate forecast even more difficult than in "normal" times. "Basically, it can be said that the economic crisis will worsen if the measures adopted fail to control the pandemic. Rising bankruptcies and unemployment rates can be expected," says Papp.

Permanently unemployed or people on short-time work run the risk of not being able to pay the rent or mortgage interest in the required amount. These and other factors have the potential to negatively impact property prices. Experience has shown that the prices for private homes in the normal segment are more robust than those for residential investment properties or office and commercial buildings. "It is in the nature of things that higher risks have to be compensated for with higher interest rates," says Papp.

Consider carefully when buying a home

The decision to buy a house or an apartment or to refrain from it or to postpone the purchase until later depends, according to Papp, on the following factors, among other things, which are particularly important in Corona times:

  • Long-term stability of income
  • Assessment of the likelihood of a significant drop in the price of the desired property
  • Individual risk tolerance and willingness to take risks
  • Individual degree of flexibility

However, mortgage borrowers who have to repay an expiring mortgage in the coming weeks and months will still find favorable conditions. A ten-year fixed-rate mortgage can be renewed, for example, with an average credit rating of less than 1%, says Papp.

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