Fixed-rate mortgages at 18-month high: Why rates are rising despite SNB zero rate

According to current surveys, the 10-year rate for a fixed-rate mortgage is just under 1.93 percent, the five-year term is 1.83 percent, and the three-year term is 1.59 percent. This means the long end is as expensive as it was last in March 2025. The increase is not being driven by the Swiss National Bank, but by the capital markets. The yield on the ten-year federal bond has climbed from 0.24 to around 0.62 percent within a few months. Ten-year franc swaps, which banks use as a benchmark for refinancing, have moved in the same magnitude.

Why SNB policy is no longer effective

The interest rate on a fixed-rate mortgage is not set at the National Bank's counter, but on the capital market. Banks usually hedge the interest rate risk of a ten-year mortgage via interest rate swaps; the swap yield plus a margin results in the customer rate. If the yield on long-term federal bonds rises, swap rates follow suit, and the customer interest rate on the fixed-rate mortgage climbs accordingly.

There are two drivers behind the current movement. First, inflation expectations: Geopolitical tensions in the Middle East and an increase in energy prices have recently pushed inflation in the eurozone up to 3.3 percent. Second, the global supply of government bonds. Governments are financing higher defense spending, while billions are simultaneously being invested in data centers and infrastructure for artificial intelligence. Both increase the volume of bonds the market has to absorb, pushing prices down, which is equivalent to rising yields.

The SNB's zero interest rate continues to have an effect in this environment, but mainly at the short end. SARON mortgages are still below the 1 percent mark, as they are directly linked to the overnight rate. The curve between short and long has thus become significantly steeper.

SARON and fixed-rate mortgage in current comparison

For homeowners and potential buyers, the calculation is shifting as a result. Those who take out a ten-year fixed-rate mortgage today pay about 0.9 to 1.0 percentage points more than for a SARON mortgage. On a mortgage of 800,000 francs, this translates to about 7,200 to 8,000 francs in higher annual interest costs depending on the bank.

Even if the key interest rate rises, the gap would initially remain large. Assuming an SNB move to 0.25 or 0.5 percent, a SARON interest rate would mathematically climb to around 1.0 to 1.25 percent. The difference with the ten-year fixed-rate mortgage would still be around 0.7 percentage points. Only after several consecutive interest rate hikes by the SNB would the picture change.

However, interest rate security has its own value. Those with tight affordability or planning long-term capital ties can use a fixed-rate mortgage to budget for a known rate for ten years. With a SARON mortgage, the monthly payment depends on monetary policy.

Looking ahead to September 24

The next interest rate decision by the Swiss National Bank is scheduled for September 24. The vast majority of economists expect the key interest rate to remain at 0 percent. The main debate is about the timing of the first rate hike. VP Bank does not rule out a move in December. UBS economists do not see the first increase of 0.25 percentage points until mid-2027.

For fixed-rate mortgage rates, the September 24 decision is only part of the equation. More important is how the SNB assesses the further development of inflation, the strength of the franc, and the international dynamics of interest rates. If communication is more restrictive than expected by the market, the swap curve is likely to climb again. If President Martin Schlegel, on the other hand, indicates a longer period at zero, the rise at the long end could at least calm down.

What existing customers should keep in mind

Those who currently have a fixed-rate mortgage running will not feel the effects of the new interest rate level for the time being. The trend reversal will only become relevant upon maturity. If a ten-year fixed-rate mortgage concluded in 2017 at 1.3 percent expires next year, the follow-up solution at current conditions is likely to be noticeably more expensive.

For prospective buyers, it's worthwhile to obtain multiple offers and compare them precisely. The range between the cheapest and the most expensive provider can be more than 0.4 percentage points for ten-year fixed-rate mortgages. For a large loan amount, this can add up to a five-figure sum over the term.

One thing is now absolutely clear: The thesis of permanently cheap money, which was valid during the long zero interest phase before 2022, no longer holds. While the SNB key rate remains at 0, long-term refinancing for banks is no longer at zero. Anyone financing a mortgage must come to terms with an interest rate landscape shaped by global capital flows at least as much as by the policy of the National Bank.