A ten-year fixed rate mortgage at 0.80% with no penalties for early repayment...This offer was received by one of our clients a few weeks ago. In 20 years in the mortgage financing sector, it’s a first!  

Such a mortgage finance offer may even seem irrational. It can, however, be explained by the economic circumstances that we have been experiencing for some time.

You should remember that the 2008 crisis had a major impact on today’s economy. The financial markets went through a very complicated period, mainly due to a global drop in Central Banks’ base rates. The system of lowering rates was implemented by various governments to revitalize the economy.

As mortgage rates are directly linked to base rates (the rate at which banks lend to other banks), they went down significantly.

At the same time, Switzerland's economic and political stability made its currency very attractive compared to other currencies. Demand from foreign investors increased constantly, which brought down exchange rates to the detriment of the local economy.

In 2011, the government took an additional, rather unusual, measure by introducing an exchange rate control, EUR/CHF at 1.20, called the “Peg”.

This floor rate was abolished in 2015 because it became too difficult to maintain for the Swiss National Bank in the face of a growing demand for the currency. However, removing the control without stronger action to make the Swiss currency less attractive was very risky. On the day the Peg was lifted, an almost immediate variation in the rate, from 1.20 to 0.80, was observed.

It was, therefore, decided to combine the lifting of the Peg with negative interest on monetary deposits deposited with the SNB at 0.75%. The SNB could even tax monetary deposits within a range of -0.75% to -1.25%, which would leave room for maneuver if the measure did not succeed in making the Swiss Franc less attractive.

Banks exchange money practically free of charge. This allows clients to benefit from almost identical mortgage rates, whether they are LIBOR rates or 10-year fixed rates. The refinancing rate to which the lender adds their margin is close to zero in both cases.

What will happen in the future? In view of the above, we will commit to stating that mortgage rates will not go down further. As rates (excluding margins) are around zero, the risk of error in this position is well controlled.

However, the fact that rates are historically at their lowest does not completely exclude the threat of early repayment penalties. Choosing mortgage loan rates requires analysis of the needs of each borrower to avoid potential unwelcome consequences such as penalties in the event of early repayment of the loan. Our analysts will help you make these decisions so you can avoid the pitfalls.

The information contained on this website is for information purposes only. This information can in no way be construed as a recommendation, invitation, or offer to conclude a contract, nor to purchase or sell real estate.