Mortgage interest rates on the decline What homeowners and tenants can expect in 2025
A strong franc, falling refinancing costs and moderately low inflation: the general conditions for people with a mortgage have improved considerably in recent months. Tenants could also benefit.
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- Interest rates for fixed-rate mortgages in Switzerland have fallen significantly since the start of the year.
- The reference interest rate for ten-year mortgages is currently 1.55 percent.
- The mortgage reference interest rate could fall again by 2025.
- This could mean relief for existing tenants, but continued rising rental costs for new tenants.
- The strong franc and global uncertainties, such as possible US tariff increases, pose challenges for the SNB in terms of inflation control and currency stability.
There is good news for property owners and those who want to become one: Interest rates for fixed-rate mortgages have fallen significantly in recent months. The reference interest rate for ten-year fixed-rate mortgages is currently just 1.55% (as of December 6). This is a fall of 0.71 percentage points since the beginning of the year, when the interest rate was still at 2.26 percent.
Not only mortgage interest rates, but also the banks' refinancing costs have fallen significantly. The 10-year swap, an important indicator of banks' costs, has fallen by 0.83 percentage points to just 0.33% since the start of the year. By comparison, this figure was still 1.16% at the start of 2023.
Yields on 10-year Confederation bonds, the so-called "SNB spot rate", have also shown a similar trend. The rate has fallen from 0.68% at the beginning of the year to 0.24% - a drop of more than two thirds.
The falling interest rates are in line with the moderate inflation in Switzerland. Since September, the inflation rate has been well below 1 percent, which increases the scope for lower financing costs.
At least 2 further interest rate cuts included in current prices
Interest rates for fixed-rate mortgages of all maturities have fallen steadily in the last 6 months in particular. Inflation has fallen much faster than initially expected. A strong franc favored this development, but had a negative impact on the export industry. In order to curb the appreciation of the franc, the Swiss Central Bank (SNB) has reduced the key interest rate twice since its first rate cut in March, each time by 0.25 percentage points.
"Inflation is now falling faster than initially expected. The sharp fall in benchmark interest rates for fixed-rate mortgages indicates that the SNB is continuing its cycle of interest rate cuts," says Comparis financial expert Dirk Renkert. He continues: "The current prices already include at least two further interest rate cuts. The benchmark interest rates for fixed-rate mortgages with longer terms in particular will no longer react on the day of the interest rate decision."
By the end of June 2025, the benchmark interest rates for 10-year fixed-rate mortgages are likely to range between 1.45 and 1.65 percent. For the benchmark interest rates for 5-year fixed-rate mortgages, he assumes an interest rate range of 1.30 to 1.45 percent.
Mortgage reference interest rate likely to fall again in 2025
The interest rate trend continues to cause movement on the Swiss real estate market - with noticeable effects for tenants and owners. The mortgage reference interest rate, which is based on the average interest rate of outstanding mortgages, rose from 1.25% to 1.75% in 2023. This led to rent increases in many places. However, a look into the future indicates a trend reversal: the reference interest rate could fall again in 2025, which would mean a reduction in rents for many tenants.
Despite the noticeable increase in existing rents, the rise in the reference interest rate had only a limited impact on general inflation. Renkert also expects moderate effects from a reduction in the reference interest rate and possible rent reductions.
Mortgage interest rate has only limited impact on inflation
The situation is different for new tenants: Here, the shortage of available apartments continues to drive up asking rents. This development remains a key driver of inflation and increases the burden of housing costs.
"To the great surprise of many, the sometimes significant increases in existing rents resulting from 2 increases in the mortgage reference interest rate have only had a very modest impact on inflation," says Renkert. If claims are asserted by tenants due to the lower mortgage reference interest rate, only minor effects are therefore to be expected. Conversely, new tenants are confronted with persistently rising asking rents due to a shortage of living space. "Rising rents are and will remain a significant driver of inflation in the future," says Renkert.
Further interest rate cuts expected from the SNB
The SNB will decide this week on possible further interest rate cuts. It already indicated in September that interest rate cuts were likely in order to counteract possible deflation. Market observers expect a reduction in the key interest rate to 0.75 percentage points, with the prospect of further cuts in the coming year.
The exchange rate remains a decisive factor for inflation. The Swiss franc has appreciated significantly against the euro, making imported goods cheaper. At the same time, the franc has recently lost value against the US dollar. The US Federal Reserve (Fed) is under pressure to reconsider its cycle of interest rate cuts in view of rising inflation, which most recently reached 2.6% in October. Added to this are geopolitical uncertainties and possible tariff hikes by the new US government. "Higher tariffs could further fuel inflation and provoke countermeasures by the countries concerned," warns Comparis expert Renkert.
The SNB must therefore find a fragile balance between controlling inflation, the strength of the franc and global risks.