On June 20, the Swiss National Bank (SNB) announced that the key interest rate would be lowered from 1.5 percent to 1.25 percent. The Swiss economy is currently in a robust phase and is showing moderate growth. Demand for real estate remains high, but prices are rising more moderately than in previous years. Mortgage interest rates remain low by international standards and affordability continues to be an issue for buyers, which is influencing prices. What are the advantages of the key interest rate decision for property owners, buyers and tenants?
History of the key interest rate
Over the past few years, the SNB has adjusted its key interest rate policy several times in response to economic developments. In 2022, the key interest rate was gradually raised, initially to 1.75 percent, in order to counteract rising inflation. This measure proved effective and the inflation rate stabilized. The key interest rate was then lowered to 1.5 percent in March 2024 to support the economy. With the latest cut to 1.25 percent, the key interest rate is now back at the level it was at the start of 2023. These continuous adjustments show the SNB’s efforts to react flexibly to economic challenges.
Opportunities through lower financing costs
Nationwide inflation stood at 1.4% in May 2024, well above the annual low of 1% in March. The depreciation of the Swiss franc since the beginning of the year argues against a renewed fall back to the March low. Stable inflation reduces the pressure on the SNB to raise the key interest rate again and creates an environment in which falling interest rates are possible. For the economy, this means that the cost of loans and financing will continue to fall, which can boost investment and consumer spending.
This opens up special opportunities in the real estate sector. Lower financing costs can reduce construction costs and make new builds more attractive as the financing of these projects becomes more favorable. Builders and real estate developers can increasingly initiate new projects, as the more favorable loans reduce the overall investment costs.
Effects on property owners and buyers
For property owners, a lower prime rate means lower financing costs above all. Mortgage interest rates could fall further, reducing the cost of existing mortgages . This enables households to reduce their monthly expenses and potentially reduce debt more quickly. This is particularly good news for potential buyers, as lower financing costs make buying property more affordable. A reduction in the key interest rate could also increase demand for real estate, as the lower financing costs could encourage more people to buy their own home. This could lead to an overall revival of the real estate market and boost both construction activity and sales in the sector.
Advantages for tenants
The SNB’s decision is also positive for tenants, as it signals that major interest rate hikes and the associated rent increases are unlikely for the time being. This offers tenants financial security and enables them to plan their monthly expenses better. If the key interest rate remains low, rental prices could also remain stable or even fall, as landlords have less pressure to increase rents due to lower financing costs. In addition, falling interest rates could ease the pressure on the housing market as fewer people are forced to look for cheaper alternatives due to rising rents.
Reasons for the interest rate cut
The SNB’s decision to lower the key interest rate to 1.25 percent is based on a careful analysis of the economic environment. The constant inflation rate of 1.4 percent shows that the SNB‘s monetary policy measures are taking effect and price stability is guaranteed. A lower key interest rate provides an important basis for economic planning and promotes confidence in the financial markets. As energy prices are falling again and service prices are expected to normalize due to weak domestic demand, the conditions are in place for a further reduction in the key interest rate.
International influences and forecasts
While the SNB continues its supportive interest rate policy, there are indications from the eurozone of possible interest rate cuts. ECB President Christine Lagarde indicated that interest rate cuts could be expected this summer. These developments could also have an impact on Switzerland, as international interest rate decisions often have an influence on the SNB’s monetary policy. Experts therefore expect the SNB to continue to adapt its decisions flexibly to global economic conditions.
Conclusion
The Swiss National Bank’s decision to cut the key interest rate to 1.25 percent brings positive news for both property owners and tenants. A lower prime rate ensures lower financing costs, stabilizes mortgage interest rates and can have a positive impact on property prices. This creates an environment in which both owners and tenants can benefit from a predictable financial situation. It remains to be seen how international developments will affect the SNB’s future monetary policy, but for the time being the SNB’s decision provides welcome support for the Swiss real estate market. The continuation of a stable interest rate policy supports confidence in long-term economic development and enables households and companies to plan their financial strategies without unexpected interest rate changes.
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