Mortgage Rate Forecast: May 2024

Moderate cut in SNB interest rates likely

Swiss government bond yields and mortgage interest rates continued their sideways trend in March and April. The reduction in the key rate of the Swiss National Bank (SNB) from 1.75 to 1.5% at the end of March has not changed this situation. Indeed, the bond markets had already anticipated in their prices a reduction in key rates before the SNB’s assessment of the situation. They continue to expect the policy rate to be lowered to 1% over the next 12 months.

The market’s anticipation that the SNB will probably only cut the key rate by a total of 0.75% stands out sharply from the last two interest rate cut cycles in Switzerland. In 2001, the SNB lowered its key rate from 3 to 0.375% and in 2008, from 2.75 to 0.125%. Both of these rate cut cycles were triggered by global recessions: in 2001, the dot-com bubble recession and in 2008, the global financial crisis. Such a global recession now seems unlikely. On the contrary: the robustness of the American economy makes it likely that the US Federal Reserve’s key rates will only be lowered in the second half of the year.

For these reasons, UBS experts assume that the bond markets correctly assess the SNB’s monetary policy. As a result, Swiss long-term interests are expected to continue to move sideways in the coming quarters. Mortgage interest linked to SARON, on the other hand, should benefit from two further rate cuts by the National Bank in the coming quarters.

Current yields already reflect expected rate cuts in 2024. It is therefore highly unlikely that we will see another decline this year. If inflation or growth falls more than expected, yields could rise again.