Created: 02 April 2020
The coronavirus causes a lot of nervousness in the financial markets. The indicative interest rate for ten-year fixed mortgages has risen significantly within a short period of time.
"The dreaded Black Swan has surfaced disguised as the coronavirus. It is forcing the global economy into a forced pause and causing severe price fluctuations on the stock markets", says Frédéric Papp, financial expert at Comparis. Countries worldwide are trying to avoid a long lasting recession with aid packages of several thousand billion Swiss francs. Various central banks, in the forefront of which is the US Federal Reserve, have also lowered their key interest rates, in some cases significantly.
The coronavirus is leading to investment stops by private, commercial and industrial players. This leaves deep scars on companies' income statements and is one of the reasons for the sometimes severe price falls on the stock markets. The rampant uncertainty on the financial markets also affects mortgage interest rates. The target rate for ten-year fixed mortgages reached a record low of 0.98% on March 9. After that, it suddenly turned upward to 1.19%. At the end of March, the target rate was now 1.17%. By way of comparison, it was 1.09% in the fourth quarter of 2019. The target rate for five-year fixed mortgages is also higher than at the end of 2019, while two-year fixed mortgages have become slightly more expensive.
Refinancing costs have risen
"The significant increase in interest rates is also due to higher refinancing costs," explains Papp. The development of the ten-year interest rate swap (CHF) was still -0.61% on 9 March. It currently stands at -0.19%. The yield of the ten-year Swiss Confederation has also risen, from around -0.9 to currently a good -0.37%. The coronavirus makes it even more difficult to forecast interest rates than in "normal" times. "Basically, it can be said that the economic crisis will worsen further if the measures adopted fail to control the pandemic. Rising bankruptcies and unemployment rates are to be expected," says Papp.
The permanently unemployed or people on short-time work run the risk of no longer being able to pay the rent or mortgage interest at the required level. These and other factors have a potentially negative impact on property prices. Experience shows that the prices of owner-occupied homes in the normal segment are more robust than those of residential investment properties or office and commercial buildings. "It is in the nature of things that higher risks must be compensated for with higher interest rates," says Papp.