What was once a lucrative investment option for insurance companies and pension funds has become less attractive as a result of the interest rate turnaround. Some players and also many brokers in the mortgage business have de facto disappeared from the scene. This has far-reaching consequences for bank customers.
The mortgage landscape has changed dramatically. Let’s look back: In the summer of 2022, insurance companies and pension funds were investing on a large scale in the Swiss mortgage market. They wanted to escape the negative interest rates that weighed on their balances. Mortgages were seen as an attractive alternative to bonds that had negative interest rates at the time. Mortgages yielded up to 2 percent more than federal bonds.
The end of negative interest rates
But with the end of negative interest rates in September 2022, mortgages rapidly lost their appeal as an investment vehicle. “Insurance companies and pension funds are hardly noticeable on the market anymore,” says Adrian Wenger, financing expert at VZ Vermögenszentrum. An important case is Zurich Insurance, which no longer grants new mortgages. The insurance company writes that financing has become more difficult in the context of higher interest rates. According to various experts, CS is also hardly active in the merger with UBS. However, the bank does not want to comment on its market behavior when asked.
It used to be easy to choose from five to ten different offers from banks and insurance companies. But those times are over. Now you can find at best a handful of options, mainly from cantonal banks, Raiffeisen and regional banks for which mortgages are a core business.
The path to financing – and then to the most attractive interest rate possible – has become more difficult. Most customers have to visit two or three banks in person and negotiate. In the final round, they choose from a narrow selection.
Mortgage brokers under pressure
But that is not the only change in the game, as Adrian Wenger from VZ emphasizes: The mortgage brokers and platforms such as Moneypark, Hypoguide or Valuu from Postfinance are losing massive influence. They thrived in times of low interest rates, but now the brokerage business is struggling. It also plays a role that many players from the non-banking sector are simply breaking away.
Customers who took out a mortgage with very low interest rates with insurance in 2021 or 2022 are now facing problems. If the intermediary broker is no longer active in the market, these borrowers will no longer have anyone to turn to. Even with direct lenders, i.e. pension funds and insurance companies, it is often difficult to find a contact point for questions about the mortgage.
These institutions have now found more attractive investment options and are no longer willing to make “fighting offers” in the mortgage market in order to outdo the competition.
How customers feel the change
Adrian Wenger points out that extensions of such mortgages are now unlikely to be competitive. Customers who are able to refinance the entire amount at a bank could still get off lightly. The situation is more difficult for those who have split their mortgage into several parts, such as a 5-year and a 10-year term. This group will likely not be able to trade until the final tranche matures. So anyone who hoped to save a lot of money on interest will end up having to pay more.
The experts agree that the banks have taken the helm when it comes to offering the best deals. Florian Schubiger, financing specialist at the Internet platform Kredite.ch, is surprised at the extent of the trend reversal: “A sample shows that today only around 10 to 20 percent of the top offers come from non-banks.”
But how active are bank customers when it comes to finding the best offer on the market? Studies show that the majority are extremely lazy about change. Andreas Dietrich, professor of banking at the Lucerne University of Applied Sciences, says: “When a mortgage needs to be refinanced, most people don’t even get a competitive offer or just do it to put a little pressure on the negotiations.”
The direct route to better conditions
Exploring the market, obtaining offers and conducting discussions is time-consuming and not very popular with customers. Paradoxically, most people paid more attention to a hotel booking than to their mortgage, the Lucerne professor notes. In addition, the prices are not easily visible and are set individually by the banks.
The question remains which lender suits which customer. In particular, families who make tight calculations prefer to stick to traditional mortgage banks. Business customers usually find the expertise they need for their projects at the larger cantonal and Raiffeisen banks, as well as at private or large banks.
Holiday properties are another segment. Private individuals from the lowlands who are buying a holiday home in Graubünden or Valais should definitely consider local providers. These usually offer better interest rates in their home area than external banks. Choosing a mortgage lender, whether for your own home or a vacation property, is always a momentous financial decision.