Swiss interest rates remain the same, but who are the winners and losers?
After five consecutive increases since it had lifted rates out of negative territory in June 2022, Swiss National Bank (SNB) will keep the current rate of 1.75 percent for the time being. What effect will this have on the public?
"We have decided to leave the SNB policy rate unchanged," the bank said in a press release on Thursday.
It added, however, that further rate hikes can’t be ruled out in the future.
"A further tightening of monetary policy may become necessary to ensure price stability over the medium term,” the central bank said.
Monetary policy assessment: The press release and introductory remarks delivered by the Governing Board members at the news conference are available on our website (in English, German, French and Italian): https://t.co/F9E6e5eAMl pic.twitter.com/EFitQ2bSwz
— Swiss National Bank (@SNB_BNS) September 21, 2023
The fact that SNB’s rates remain the same is good news for some, and not so good for others.
Who benefits from this situation?
The clear ‘winners’ are homeowners whose mortgages are not ‘fixed.’
Most specifically, it concerns those who have taken out the so-called ‘SARON’ mortgage
With SARON, which is an acronym for Swiss Average Rate Overnight, the rate can change daily, so it becomes more expensive when rates go up, but not when they go down or remain the same — the latter being the case now.
READ ALSO: What is Switzerland’s ‘SARON’ mortgage?
While people who have taken out SARON mortgages are not gaining anything when interest rates remain stable, they are not losing either, because not having to pay higher interest is a victory in itself.
The same is true for other homeowners who don’t have a fixed-rate mortgage: they got a reprieve from having to pay higher interest.
However, this ‘lull’ may very well be temporary: as the SNB pointed out, further rate hikes can’t be ruled out in the future.
What about rent prices?
The news is not as good for tenants.
Even though the current 1.75-percent rate has not budged upward, their rent will increase nevertheless.
On June 1st, 2023, the benchmark interest rate went up for the first time in 15 years, which means that many households will see their rents increase by an average of 3 percent from October 1st.
READ ALSO: Why rents in some parts of Switzerland are now set to increase sharply
Even if the reference rate is maintained at the same level, mortgage rates are currently significantly higher than two years ago.
Experts therefore expect a further increase in the benchmark interest rate on December 1st. “This upward trend is likely to continue for a long time,” according to Fredy Hasenmaile, chief economist at Raiffeisen bank.
What impact will the pause in interest rates have on household budgets?
Basically, the situation will remain as is now, with the exception of higher rents for some tenans, as mentioned above.
However, for people who tend to see the glass half-full instead of half-empty (in other words, optimists), the news is rather good.
The Swiss Trade Union said the decision not to increase interest rates is “judicious,” because it maintains the status quo rather than deteriorate the current situation.
Comments
See Also
"We have decided to leave the SNB policy rate unchanged," the bank said in a press release on Thursday.
It added, however, that further rate hikes can’t be ruled out in the future.
"A further tightening of monetary policy may become necessary to ensure price stability over the medium term,” the central bank said.
Monetary policy assessment: The press release and introductory remarks delivered by the Governing Board members at the news conference are available on our website (in English, German, French and Italian): https://t.co/F9E6e5eAMl pic.twitter.com/EFitQ2bSwz
— Swiss National Bank (@SNB_BNS) September 21, 2023
The fact that SNB’s rates remain the same is good news for some, and not so good for others.
Who benefits from this situation?
The clear ‘winners’ are homeowners whose mortgages are not ‘fixed.’
Most specifically, it concerns those who have taken out the so-called ‘SARON’ mortgage
With SARON, which is an acronym for Swiss Average Rate Overnight, the rate can change daily, so it becomes more expensive when rates go up, but not when they go down or remain the same — the latter being the case now.
READ ALSO: What is Switzerland’s ‘SARON’ mortgage?
While people who have taken out SARON mortgages are not gaining anything when interest rates remain stable, they are not losing either, because not having to pay higher interest is a victory in itself.
The same is true for other homeowners who don’t have a fixed-rate mortgage: they got a reprieve from having to pay higher interest.
However, this ‘lull’ may very well be temporary: as the SNB pointed out, further rate hikes can’t be ruled out in the future.
What about rent prices?
The news is not as good for tenants.
Even though the current 1.75-percent rate has not budged upward, their rent will increase nevertheless.
On June 1st, 2023, the benchmark interest rate went up for the first time in 15 years, which means that many households will see their rents increase by an average of 3 percent from October 1st.
READ ALSO: Why rents in some parts of Switzerland are now set to increase sharply
Even if the reference rate is maintained at the same level, mortgage rates are currently significantly higher than two years ago.
Experts therefore expect a further increase in the benchmark interest rate on December 1st. “This upward trend is likely to continue for a long time,” according to Fredy Hasenmaile, chief economist at Raiffeisen bank.
What impact will the pause in interest rates have on household budgets?
Basically, the situation will remain as is now, with the exception of higher rents for some tenans, as mentioned above.
However, for people who tend to see the glass half-full instead of half-empty (in other words, optimists), the news is rather good.
The Swiss Trade Union said the decision not to increase interest rates is “judicious,” because it maintains the status quo rather than deteriorate the current situation.
Join the conversation in our comments section below. Share your own views and experience and if you have a question or suggestion for our journalists then email us at [email protected].
Please keep comments civil, constructive and on topic – and make sure to read our terms of use before getting involved.
Please log in here to leave a comment.