THE SNB JUST DROPPED INTEREST RATES AGAIN – HERE’S WHY IT’S A GREAT TIME TO BUY A PROPERTY IN SWITZERLAND
Compared to the rest of Europe (and the world), Swiss mortgages are already cheap. Now, they’re getting even cheaper.
As of today, here are the average market rates for Swiss mortgages:
1.80% - SARON (1-month rolling)
1.58% - 2 Years Fixed
1.57% - 5 Years Fixed
1.70% - 10 Years Fixed
1.83% - 15 Years Fixed
2.01% - 20 Years Fixed
*The interest rates shown are the best rates currently available via IWP partners. Your personal interest rate/offer may vary based on your affordability, loan-to-value ratio, mortgage size and location.
The Swiss National Bank (SNB) dropping interest rates creates an advantageous environment for potential homebuyers in Switzerland. As we forecast back in February 2024, and as far back as our article of May 2022, governments and central banks can only keep rates higher for so long; our world is addicted to cheap money. Inflation may return in the medium-term, which presents a timely opportunity now to buy a house in Switzerland.
Here’s why it's a great time to consider purchasing property:
Lower Mortgage Rates
When the SNB reduces interest rates, it typically leads to a decrease in mortgage rates offered by banks and other lending institutions. This results in:
- Reduced Monthly Payments: Lower interest rates mean you’ll pay less interest on your mortgage, translating to lower monthly payments.
- Increased Affordability: Lower rates can make homes more affordable, allowing buyers to purchase properties they might not have been able to afford previously.
Higher Borrowing Capacity
Affordability calculations aside, with lower interest rates, your borrowing capacity increases. This means:
- Larger Loan Amounts: You might qualify for a larger mortgage, enabling you to buy a more expensive home or one in a more desirable location.
- Better Terms: Lenders may offer more favourable terms, such as lower down payments or longer loan terms.
Opportunity for Investment
Property is often considered a stable investment, especially in Switzerland, known for its strong and stable real estate market. Lower interest rates enhance the investment appeal:
- Higher Returns: The cost of borrowing is lower, which can increase the potential return on investment (ROI) from rental income or property appreciation.
- Increasing Construction: Reducing borrowing costs positively affects real estate developers, as well as buyers, bringing more opportunities onto the market
- Diversification: Investing in property can diversify your investment portfolio, potentially providing a hedge against inflation and market volatility.
Economic Stimulus
Lower interest rates can stimulate economic growth by encouraging borrowing and spending. This broader economic impact can benefit property buyers:
- Job Stability: Economic growth can lead to job creation and stability, enhancing buyer’s ability to commit to long-term financial obligations like a mortgage.
- Consumer Confidence: A healthy economy boosts consumer confidence, making it a more favourable time to make significant investments.
Favourable Market Conditions
The real estate market often responds positively to lower interest rates:
- Increased Buyer Activity: More buyers entering the market can increase competition, potentially driving up property values over time.
- Motivated Sellers: Sellers may be more willing to sell – especially those near retirement – resulting in faster sales cycles.
Refinancing Opportunities
If you already own a property, lower interest rates offer opportunities to refinance your existing mortgage:
- Lower Payments: Refinancing at a lower rate can reduce your monthly mortgage payments, freeing up cash for other investments or expenses.
- Shorter Loan Term: You might choose to refinance to a shorter loan term while keeping payments manageable, helping you have greater flexibility versus typical Swiss mortgages with high early repayment penalties.
- Switch 3rd Pillar Pledging: You can switch the 3rd pillar pledged to your home at any time, however many people like to do this when they change their mortgage, resulting in higher returns, and in some cases, the addition of capital protection/life insurance.
Conclusion
The SNB’s decision to lower interest rates creates a highly favourable environment for purchasing property in Switzerland. Lower borrowing costs, increased affordability, and the potential for higher returns make it an opportune time for both homebuyers and investors.
It’s a simple principle; with money this cheap, it makes sense to borrow, fix low and long, and purchase high quality assets that are protected from increasing inflation. What’s more, there is a compelling argument for Swiss property as part of your retirement income portfolio.
However, it’s essential to consider your financial situation, market conditions, and long-term goals. Consulting with a regulated independent financial advisor can help you make an informed decision tailored to your circumstances.
Disclosure:
This article has not been written to give advice, and purely expresses our own opinions. We are not receiving any compensation for it, and we are not responsible or liable in our capacity as an independent financial adviser for any action taken by readers based on these opinions. For personalised advice based on these issues, please seek advice from a regulated, independent expert.