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  #21  
Old 20.09.2022, 19:09
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Re: Ready for higher interest rates?

Page 44 of this document shows Swiss mortgage rates (presumably as some sort of average of the terms). Mortgage rates haven‘t been above 5% for over 25 years, noting that the document only goes to 2006, but they have been lower since. They were in the 4-7% range between 1970 and 1996 and basically below 5% from the start of record keeping to 1970. Hence, 5% would appear to be a prudent rate for an affordability calculation.

I think it‘s fair to say that if mortgage rates are 5%+ when I next need to worry about them, I‘ll be looking to pay the whole thing off!

https://www.snb.ch/en/mmr/reference/...en_book.en.pdf
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  #22  
Old 20.09.2022, 19:47
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Re: Ready for higher interest rates?

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Page 44 of this document shows Swiss mortgage rates (presumably as some sort of average of the terms). Mortgage rates haven‘t been above 5% for over 25 years, noting that the document only goes to 2006, but they have been lower since. They were in the 4-7% range between 1970 and 1996 and basically below 5% from the start of record keeping to 1970. Hence, 5% would appear to be a prudent rate for an affordability calculation.

I think it‘s fair to say that if mortgage rates are 5%+ when I next need to worry about them, I‘ll be looking to pay the whole thing off!

https://www.snb.ch/en/mmr/reference/...en_book.en.pdf
I was going to make the same point. If rates went significantly above 5% anyway there would likely be a significant correction in house prices so the overall affordability amount would stay the same in terms of francs even if it was tested to 7% for example.
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  #23  
Old 20.09.2022, 21:34
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Re: Ready for higher interest rates?

I just wish it would finally impact the interest on bog-standard savings accounts. Having worked in asset management for several decades, I‘m pretty risk averse.

Have not withdrawn my 2. pillar retirement assets as a now retired previous employee of UBS yet as a lump sum, because at least there I earn good interest (can do that for a max. 2 years). Last year was pretty good, but now it‘s capped at 1% if you do this).

Luckily I chose only 3A pillar accounts with least risk, as many have lost 14% recently.
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  #24  
Old 20.09.2022, 23:35
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Re: Ready for higher interest rates?

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I was going to make the same point. If rates went significantly above 5% anyway there would likely be a significant correction in house prices so the overall affordability amount would stay the same in terms of francs even if it was tested to 7% for example.
Why?

With interest at 6% but inflation at 10% (the current difference) and very low unemployment, wages rise far faster than the interest payments, and the purchase power reduction that is caused by inflation on the mortgage. You effectively get paid for your debt.

In a rational market (which doesn't apply to most family home owners, but it does to the banks and commercial RE) and absent a recession, nominal prices have no reason to fall unless the real interest rate is quite a bit less negative than has been in the recent past.
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  #25  
Old 21.09.2022, 09:47
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Re: Ready for higher interest rates?

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Why?

With interest at 6% but inflation at 10% (the current difference) and very low unemployment, wages rise far faster than the interest payments, and the purchase power reduction that is caused by inflation on the mortgage. You effectively get paid for your debt.
nice in theory. but do you see most home owners around you getting 10% pay rises? if anything, they are likely suffering financial repression with wages growing at 1% and costs rising at a much high rate.
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  #26  
Old 21.09.2022, 09:56
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Re: Ready for higher interest rates?

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nice in theory. but do you see most home owners around you getting 10% pay rises? if anything, they are likely suffering financial repression with wages growing at 1% and costs rising at a much high rate.
I think the point is a fair one, as long as inflation remains some way above interest rates and housing remains scarce, I don't see any reason why house prices should come down.
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  #27  
Old 21.09.2022, 10:01
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Re: Ready for higher interest rates?

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I think the point is a fair one, as long as inflation remains some way above interest rates and housing remains scarce, I don't see any reason why house prices should come down.
Thats not quite the reality though. In truth, its no pay rise for the person (so chf income is the same). Other expenses increase. Interest rates increase. In this scenario there will be a steady flow of people who either a) cant pay their existing mortgage or b) can't afford a renegotiates mortgage when there discounted period ends.

So although you can't prove it, the likelihood is that in the even of "real" increases say above 5% mortgage rates, there has to be a downward pressure on house prices because people simply cannot afford to keep their payments or negotiate a new deal.
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  #28  
Old 21.09.2022, 10:25
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Re: Ready for higher interest rates?

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Thats not quite the reality though. In truth, its no pay rise for the person (so chf income is the same). Other expenses increase. Interest rates increase. In this scenario there will be a steady flow of people who either a) cant pay their existing mortgage or b) can't afford a renegotiates mortgage when there discounted period ends.

So although you can't prove it, the likelihood is that in the even of "real" increases say above 5% mortgage rates, there has to be a downward pressure on house prices because people simply cannot afford to keep their payments or negotiate a new deal.
However people will get pay rises and as long as inflation remains above interest rates, it remains theoretically cheap to borrow.

Not to mention the number of home owners in long term fixed rate mortgages at low rates. I think it would take a long time before house prices start to come down.
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  #29  
Old 21.09.2022, 11:13
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Re: Ready for higher interest rates?

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nice in theory. but do you see most home owners around you getting 10% pay rises? if anything, they are likely suffering financial repression with wages growing at 1% and costs rising at a much high rate.
Thats a Swiss problem. Wages in some EU countries like Belgium or Luxembourg are pegged to the inflation rate, so the folks there are getting an automatic 8.5% pay rise this year...
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  #30  
Old 21.09.2022, 11:20
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Re: Ready for higher interest rates?

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However people will get pay rises and as long as inflation remains above interest rates, it remains theoretically cheap to borrow.

I think the only people who will get pay raises are the ones making close to minimum wage, people struggling to make ends meet. They are not the same people who would be be buying a house for 1.5 million. Perhaps people making over 200k will also get raises because they will simply give themselves raises.



It will be a while before the EF-median salary of 120k moves to 130k. And with a salary of 120k, kids, part-time working partner, it's not very easy to afford a 1.5 million house at 3% interest, let alone 5%.


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I think it would take a long time before house prices start to come down.


This is possible, or they may never even come down. Only time will tell I guess. I never seem to be able to predict the market - the whole pandemic time proved to me that I know f. all about economics and human behaviour :-)
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  #31  
Old 21.09.2022, 11:23
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Re: Ready for higher interest rates?

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Thats a Swiss problem. Wages in some EU countries like Belgium or Luxembourg are pegged to the inflation rate, so the folks there are getting an automatic 8.5% pay rise this year...
Well, we are talking about Switzerland here, but automatic indexing countries will have a bigger problem: companies going bankrupt and people getting fired and their wages going -100%.
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Old 21.09.2022, 11:36
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Re: Ready for higher interest rates?

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nice in theory. but do you see most home owners around you getting 10% pay rises? if anything, they are likely suffering financial repression with wages growing at 1% and costs rising at a much high rate.
I just remember homeowners talking about the tax minimization benefits of having a mortgage. Then, about how cheaper was the mortagge compared to rent.

So, are the payments in variable interest rates higher than paying rent for equivalent housing unit? YES/NO?
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  #33  
Old 21.09.2022, 14:23
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Re: Ready for higher interest rates?

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Why?

With interest at 6% but inflation at 10% (the current difference) and very low unemployment, wages rise far faster than the interest payments, and the purchase power reduction that is caused by inflation on the mortgage. You effectively get paid for your debt.
And even if you get a raise, you pay marginal tax rate on it, so you don't see all of it.

Real estate is the one thing I have developed FOMO about, and turns out it was justified. Older people (friends, family, colleagues) were buying up property on a booming market, and ridiculous mortgage rates. Now the notionals are ridiculous, they will likely stay there and with rates at over 2% you're basically better off renting - market exposure notwithstanding off course... Market needs to correct or people in my generation will never get to own in CH.
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Old 21.09.2022, 16:12
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Re: Ready for higher interest rates?

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I just remember homeowners talking about the tax minimization benefits of having a mortgage. Then, about how cheaper was the mortagge compared to rent.

So, are the payments in variable interest rates higher than paying rent for equivalent housing unit? YES/NO?
i guess interest cost for a house @1% plus 1% maintenance and excluding tax impact, interest is around 50% of rental.
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  #35  
Old 21.09.2022, 16:22
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Re: Ready for higher interest rates?

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And even if you get a raise, you pay marginal tax rate on it, so you don't see all of it.
You didn't before either. Taxation brackets will get adjusted over time as well.

As for rising wages, it's happening already. Swisscom, Zurich insurance, Partners Group for instance have raised wages during this year already, that creates pressure on all others. Unions are demanding 3-5% raise for next year.
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  #36  
Old 21.09.2022, 17:13
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Re: Ready for higher interest rates?

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And even if you get a raise, you pay marginal tax rate on it, so you don't see all of it.

Real estate is the one thing I have developed FOMO about, and turns out it was justified. Older people (friends, family, colleagues) were buying up property on a booming market, and ridiculous mortgage rates. Now the notionals are ridiculous, they will likely stay there and with rates at over 2% you're basically better off renting - market exposure notwithstanding off course... Market needs to correct or people in my generation will never get to own in CH.
Don't count on it.
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  #37  
Old 21.09.2022, 20:54
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Re: Ready for higher interest rates?

Well if a 20-30% Real Estate price correction in real terms (i.e. adjusted for inflation) doesn’t happen in the next 12-24 months then we have a much bigger problems to worry about….
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  #38  
Old 22.09.2022, 11:00
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Re: Ready for higher interest rates?

SNB only raised by 50bps. Perhaps they are getting concerned about the strong franc now.
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  #39  
Old 22.09.2022, 11:16
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Re: Ready for higher interest rates?

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SNB only raised by 50bps. Perhaps they are getting concerned about the strong franc now.
Are you sure? The press release says an increase of 0.75pp to 0.5%

https://www.snb.ch/en/mmr/reference/...0220922.en.pdf
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  #40  
Old 22.09.2022, 11:19
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Re: Ready for higher interest rates?

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Are you sure? The press release says an increase of 0.75pp to 0.5%

https://www.snb.ch/en/mmr/reference/...0220922.en.pdf
You're right, I misread. 0.5% and not 50bps.
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