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Swiss mortgage rates ‘climb drastically’ with more hikes on the way

Due to inflation and Switzerland’s new monetary policy, mortgages are now twice as expensive as they were a year ago.

Published: 26 January 2023 13:21 CET

Swiss mortgage rates 'climb drastically' with more hikes on the way

Higher mortgage rates make home ownership more expensive. Photo by Tierra Mallorca on Unsplash

A bit of bad news for owners, or prospective buyers, of Swiss properties: they will have to pay more than double of 2022 prices for a 10-year fixed rate mortgage, Moneyland consumer platform reported on Wednesday.

“Swiss mortgage index has climbed drastically over the past year,” Moneyland said.

Currently, the average interest rate is 2.54 percent for five-year fixed mortgages and 2.76 percent for 10-year terms. As a comparison, at the beginning of 2022, these rates were 1.01 percent and 1.26 percent, respectively.

“On average, the cost of a ten-year fixed-rate mortgage is around double of what it was at the start of 2022,” according to Moneyland’s CEO Benjamin Manz.

Five-year mortgages are 2.5 times higher than they were in early 2022, he said.

This is not exactly a surprising development, as experts had predicted the hike when Switzerland’s central bank (SNB) raised its key rate sharply last year to fight inflation, which, in turn, caused mortgage rates to go up as well.

The upward trend could continue well into 2023, as the SNB’s chief Thomas Jordan recently said that another hike is likely, further increasing the current interest rate of 1 percent.

READ MORE: Switzerland set for another interest rate hike, central bank chief warns

This means that mortgages will remain “very expensive, and could well climb further as 2023 progresses,” Moneyland said.

If you already have a fixed-rate mortgage, then you are safe from rate increases for the term of your mortgage.

However, for new home buyers, or those with variable-rate mortgages, things may be more problematic.

“It is not excluded that mortgage interest rates will reach 3 to 4 percent next year,” according to Donato Scognamiglio, director of real estate platform Iazi.

READ MORE: What’s the outlook for the Swiss property and rental market in 2023?

Are there any cheaper mortgage options in Switzerland?

These articles could help you find alternatives to traditional models:

Reader question: What is a reverse mortgage in Switzerland, and will it benefit me?

EXPLAINED: What is Switzerland’s ‘SARON’ mortgage?

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EXPLAINED: Which Swiss health insurance deductible makes most sense?

If you come from a European, or any other country with a nationalised health care service, then you will find Switzerland’s scheme vastly different.

The same applies to the United States as well.

Even if you do understand the basics of the Swiss system, including the difference between the obligatory insurance — KVG in German, and LaMal in French and Italian — and the complementary policies, you may still have trouble wrapping your head around the out-of-pocket expenses (the so-called franchise) that you will have to pay yourself.

The deductible

It is not unusual for various policies, such as car or home insurance, to include a deductible — the amount you will have to pay yourself before the insurance starts covering incurred costs. But it is usually a fixed amount, determined by the insurance company.

Not so with the Swiss health insurance.

When you take out a policy, you will have to choose the amount of your annual franchise — ranging from the lowest, 300 francs, to the highest, which is 2,500 francs. (There are various other amounts in between as well, but these two are the most common).

Whichever amount you choose, you will have to pay it yourself before you can claim benefits from the insurance provider.

Highest versus lowest

At first glimpse, the 300-franc deductible is a more attractive option, because it means you will reach the franchise threshold quicker.

However, opting for this amount means that your monthly premiums will be quite a bit higher than if you choose the highest deductible, that is, 2,500 francs.

As an example, if you select the latter option, your monthly premium may be 300 francs or even less. With the former one, it could go up to 450 francs or more. (Keep in mind, though, that this is only a rough estimate of costs; the actual amount depends on your age and your canton of residence).

READ ALSO: Why do Swiss healthcare premiums vary so much per canton?

These amounts, by the way, apply to adults only. For children up to the age of 18, they go from 100 to 600 francs a month.

So which amount should you choose?

The rule is: the higher the deductible, the cheaper the premiums, and vice-versa.

However, before you base your decision on this statement alone, there are two important things to take into account: your health and finances.

People who are young and healthy, and who never or rarely get sick, visit doctors, take medications, or need medical treatments in general, most commonly choose the highest franchise, which means they will be paying lower premiums.

On the other hand, if you are older (which implies, statistically, that you are more likely to seek medical help), or if you have chronic health problems requiring medications and frequent doctor visits, then you are better off with the lower franchise.

That’s the health factor. In terms of finances, having the high deductible means that if all of a sudden you need medical help, you will have to pay 2,500 francs out of your own pocket before insurance steps in.

Which deductible you choose will depend on health and money. Photo: Claudio Schwarz on Unsplash

But that is not all.

Before you do the math to calculate which deductible makes most sense to you, also consider the cost of co-insurance.

What exactly is this?

It is the money you pay out of pocket towards health insurance costs — 10 percent in total.

In other words, after you use up your franchise, you still have to pay 10 percent of the cost for medical treatment (though different rules apply to children, accidents, and maternity).

The co-insurance cost is capped at 700 francs a year, meaning that even if you have frequent, and costly, medical procedures, you will not be charged the 10-percent co-pay after you reach the 700-franc mark.

So when you sit down to figure out which franchise makes most financial sense for you, this is the thing to remember:

If you choose the highest, that is, the 2,500-franc deductible, add to it the 700-franc co-insurance cost. This means that on top of your monthly premiums, you should put aside 3,200 francs a year per adult, to be used toward health costs.

Conversely, if you have a 300-franc deductible, and add the 700-franc co-pay, then you should have 1,000 francs available each year to pay for out-of-pocket medical expenses.

When can you change your deductible — if you decide to do so?

You can switch to a lower deductible at the beginning of the calendar year.

However, you must inform your health insurer of the change in writing by November 30th of the previous year.

The same applies to a higher deductible — it will take effect at the beginning of the calendar year. Here, the deadline for informing the insurance provider is December 31st.

If you don’t notify the insurers of either change by those dates, it will be assumed that your current deductible remains as is.

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