Mortgages rates are freezing

Banks to bear the cost of containing interest on loans to the level it was at end-March

Mortgages rates are freezing

Banks are stopping any further rises in mortgage rates, freezing interest rates at a date reportedly set for March 31.

This means that any increases made after last Friday or due to be made from now on in the interest rates that form the basis of reference for housing loans will not be applied.

The freeze applies to current mortgage loans with a floating interest rate and which have a reference base of either the 1-month Euribor or the 3-month Euribor or the ECB’s benchmark interest rate or the Libor, based on which the installment of the mortgage loans in Swiss currency is calculated.

The aim is to stabilize the installments of the loans at the current levels without being further burdened by the new interest rate hikes expected to take place in the near future.

If the reference date is March 31, the 3-month Euribor will stabilize around 3.030%, while since the loan is linked to the ECB interest rate, this will be fixed at 3.50%. On each interest rate, each bank will calculate the margin (spread) that has been agreed with the borrower and thus the loan installment will be calculated.

According to sources from banks, the measure basically turns all mortgage interest rates into fixed for a specific period, which will likely be 12 months. In this way consistent borrowers will be rewarded – that is, those who have not delayed their loan installment.

In total, the mortgage loans that the banks have in their portfolios – i.e. that have not been sold to funds – amount to 24.5 billion euros, but given that some of them remain in the red and some are anyway with a fixed interest rate, it is estimated that the measure will cover around €20 billion. 

It is clarified that if there is a de-escalation of interest rates in the near future, then the reduction will be applied to the benefit of the customer.

The cost of the measure will be borne by the banks and, according to calculations, will reach €100 million euros, if the upcoming interest rate increases are limited to around 0.5%. 

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