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 the Geneva mortgage broker Resolve.

For ten-year fixed-rate mortgages for owner-occupied homes, 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 was only 80 basis points. 

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

Fixed-rate mortgages become more expensive despite shrinking bank margins

The median 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 themselves 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 median margin by five basis points to 1.00 percent. This absorbed part of the increased refinancing costs.

Source: Resolve

"The banks did not raise their prices; in fact, they even lowered them slightly. It was the interest-rate market that moved higher," explains 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 US.

Western Swiss borrowers pay higher rates

There are clear regional differences. In German-speaking Switzerland, the median 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.

Conditions were particularly favorable 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 Neuchâtel 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 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 are gaining importance again

Customers are also increasingly reacting 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 median, the average 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 arranged lending volume fell to 58.26 percent. That is 17.7 percentage points lower 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 worth 19.77 billion francs were granted. 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 homes remained relatively stable. In this segment, 13,788 new mortgages worth 10.37 billion francs were arranged. The average loan amount rose by 2.45 percent from the previous quarter to 752,000 francs.

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

Source: Resolve

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

Resolve expects further rate hikes

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.