2024-08-10 19:01:44
Banks make mortgage interest more expensive
Mortgage prices have not fallen as much as they should have because UBS has increased its profit margins and other banks are following suit.
Anyone applying for a new mortgage or renewing an existing one will need to pay more than a reasonable amount: movers to move into an apartment in Ruterrugen.
Photography: Urs Flüeler (Keystone)
this Recent stock market crash For homeowners and those who want to become homeowners, this has had a positive side effect: Interest rates on long-term fixed-rate mortgages have fallen sharply again and hit new lows. While the average rate was 2.1% in early June, it is currently 1.68%.
This is reflected in the interest rate index for residential properties, which the comparison portal Kredite.ch calculated based on 250,000 mortgages.
But experts who arrange mortgages say mortgage rates should actually be lower. The spread between the rates banks pay has increased again since the start of the year.
One reason is the high refinancing costs: Banks have a variety of options for mortgage financing. They do this, among others, through depositors’ account balances, bonds, mortgage bonds and capital markets. The interest that banks incur when refinancing is called the swap rate. Some of these refinancing costs have increased since the National Bank’s interest rate decision in June 2022.
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But the average profit on fixed-rate mortgages has increased more than expected. This can be seen by comparing the average rate on a 10-year fixed-rate mortgage with the swap rate: the difference between the two rates has widened.
The difference between the swap rate and the ten-year fixed-rate mortgage has increased slightly since the end of 2023 and has increased substantially since the end of May 2024 – so banks’ profit margins are growing.
Another reason for the margin expansion is UBS’s acquisition of Credit Suisse. The only remaining big bank also took over Credit Suisse’s mortgage business. Market observers say margins have increased significantly since then.
Adrian Wenger, a mortgage expert at VZ Vermögenszentrum, has observed that UBS’s margins have risen, sometimes by one or two percentage points. Other banks will also increase their mortgage profits. “If one of the largest mortgage providers offers higher mortgage rates, the others will adapt,” Wenger said.
One mortgage broker, who asked not to be named, even said UBS had doubled some of its margins in an effort to halve the number of mortgages it was issuing but still earn the same income from them. Mortgage expert Adrian Wenger suspects UBS will have to reduce the number of mortgages it is issuing, thereby increasing its margins. As a result, many clients are turning to other lenders.
An analysis by mortgage broker Moneypark shows that by the end of 2023, 46% of mortgages issued by the big banks will mature within a year and therefore have to be renewed. “This could enable UBS to significantly increase its profit margins in 2024, as interest rates can be adjusted when extensions are made,” the experts wrote.
UBS did not comment on accusations that it expanded profit margins at the expense of home and apartment owners. She said “mortgage lending is an important part of our business and remains core,” and that the bank was focused on “sustainable client relationships and holistic advice.”
A considerable number of banks have expanded their profit margins
Alkmene Maglaras has seen a large number of banks improve their margins in their daily operations. The head of the financing department at real estate services provider Avobis mainly oversees the financing of investment properties and real estate in the healthcare industry, such as nursing homes. To this end, she is in talks with several banks and has seen that the larger banks have implemented “significant margin improvements.”
Many banks followed suit: “One client had a 60 million franc mortgage at 0.5 percent and it has now gone to 1.2 percent,” Maglaras said. This happened as swap rates fell.
“We have seen an increase in margins at the banks over the past few weeks and they are no longer accepting all debtors,” said Damian Gliott, a partner at financial institution Vermögenspartner AG, which launched Kredite.ch.
Mortgage comparison portals also offer advice. “Providers take more than just the cost of refinancing into account when calculating interest,” says Griot.
A comparison by Moneypark shows that cantonal banks have seen the biggest increase in profit margins, at 21%, since the National Bank’s main interest rate hike in June 2022. UBS’s takeover of Credit Suisse has not yet been completed.
“We are already seeing a significant increase in margins by the end of 2023,” said Moneypark boss Lukas Vogt. For fixed-rate mortgages over ten years, margins in the first half of 2024 increased by a further 0.1 to 0.2 percentage points on average.
Another reason given by the banks for widening their profit margins is Basel III: From January 1, 2025, banks will have to show more equity, with loan-to-value ratios of 60% or more. “The banks’ position is that this is becoming increasingly costly for them, so profit margins have to be widened, but this is only partly true,” says Vogt. The regulation mainly affects the financing of investment properties. Overall, it will actually be cheaper for private homeowners. From 2025, banks will have to support low-leverage, owner-occupied properties with less equity.
“The assumption that the new regulations will push up interest rates is particularly relevant for mortgages on residential investment properties,” the Swiss Bankers Association confirmed. In the current environment of falling inflation and interest rate expectations, it is assumed that spreads will again come under greater pressure. The current Basel III regulations “have an overall marginal impact on clients”.
Mortgage volume in Switzerland in May this year amounted to CHF 1.18 trillion. UBS is the largest provider after the cantonal banks. In principle, the margin expansion is not the same for all banks and not all mortgages are affected to the same extent. There are still some providers who do not have a good reason not to expand their margins. Therefore, we strongly recommend new customers to compare the rates of different providers to avoid higher profits.
Adrian Wenger says that despite the continued rise in prices for single-family homes and apartments, demand has weakened: “In the past, we had 30 to 40 people interested in a property during the sales period, now we have maybe five.” It is also becoming more common for notarial appointments for purchase contracts to be cancelled – because, contrary to expectations, the buyer does not receive financing.
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