Competition among Swiss mortgage lenders is intensifying. While some banks are holding back on lending, others are trying to attract new customers with more favorable terms. This is leading to significant price differences, according to the latest quarterly report from Geneva-based mortgage broker Resolve.

For ten-year fixed-rate mortgages for owner-occupied property, the cheapest offer negotiated in the third quarter was 1.46 percent. The most expensive reached 2.44 percent. The difference of 98 basis points translates into annual interest costs of 8,820 francs on a mortgage of 900,000 francs. In the previous quarter, the gap between the cheapest and most expensive offer had been only 80 basis points. 

The median loan-to-value ratio for first-time buyers of owner-occupied property is 75.41 percent, which is 3.26 percentage points lower than in the second quarter. 

Fixed-rate mortgages become more expensive despite lower bank margins

The average interest rate for ten-year fixed-rate mortgages rose by 14 basis points in the third quarter to 1.84 percent. Compared with the same quarter last year, the increase amounts to 27 basis points. Notably, lenders were not the driving force behind this development. The ten-year Swiss franc swap rate, which is crucial for pricing long-term fixed-rate mortgages, rose by 19 basis points during the quarter.

At the same time, lenders reduced their average margin by five basis points to 1.00 percent. In doing so, they absorbed part of the higher refinancing costs.

"Banks did not raise their prices; they even lowered them slightly. It is the interest-rate market that has risen," explained Romain Dequesne, CEO of Resolve. The increase was influenced in particular by international interest-rate markets.

Long-term financing became more expensive, especially in September. At that time, capital market rates rose amid monetary tightening in Europe and the United States.

Homebuyers in western Switzerland pay higher interest rates

There are clear regional differences. In German-speaking Switzerland, average ten-year mortgage rates rose by five to seven basis points in the third quarter. In western Switzerland, by contrast, the increase was 10 to 13 basis points.

The most attractive conditions were in central Switzerland, with an average of 1.62 percent, and in Zurich, with 1.65 percent. In Geneva, the corresponding figure was 1.78 percent, in Vaud 1.81 percent and in Neuchatel 1.90 percent.

The highest interest rate level was in Valais at 2.15 percent. However, Resolve notes that this figure also reflects financing for second homes in tourist areas and is therefore not directly comparable with the terms for ordinary owner-occupied homes. Ticino recorded the sharpest increase in interest rates, at 15 basis points.

Resolve attributes the differences mainly to the intensity of competition. In German-speaking Switzerland, more banks, insurers and pension funds compete for mortgage customers. Where the choice is greater, rising refinancing costs are more strongly offset by lower margins.

SARON mortgages regain importance

Customers are also increasingly responding to interest-rate differences when choosing between fixed-rate mortgages and money-market-based financing. While ten-year fixed-rate mortgages cost 1.84 percent on a median basis, the median customer rate for SARON mortgages remains unchanged at 1.00 percent. The difference is therefore 84 basis points.

Accordingly, the share of fixed-rate mortgages in newly concluded lending volume fell to 58.26 percent. That is 17.7 percentage points less than in the previous quarter.

Less new business - especially for investment properties

Despite the renewed increase in competition, mortgage business overall declined, according to the broker. In the third quarter, 21,516 new mortgage loans with a volume of 19.77 billion francs were issued. Compared with the same quarter last year, this represents a decline of 4 percent in number and 6.4 percent in volume.

Demand for owner-occupied property remained comparatively stable. In this segment, 13,788 new mortgages worth 10.37 billion francs were concluded. The average loan amount rose by 2.45 percent compared with the previous quarter to 752,000 francs.

By contrast, financing for investment properties developed much more weakly. Here, lending volume fell by 12.1 percent within a year, while the number of transactions declined by only 3.2 percent.

In Resolve's view, the difference suggests that lenders have become more cautious with income-producing properties. In particular, higher financing requirements are being imposed on commercially used properties.

Resolve expects further interest rate increases

Resolve paints a cautious picture for next year. In its base scenario, the mortgage broker expects the SNB policy rate to rise to around 0.75 percent.

For ten-year fixed-rate mortgages, the company expects average interest rates of between 1.95 and 2.10 percent in 2027. Under these assumptions, the SARON customer rate could rise to around 1.75 percent.