Please don’t forget that value increases in real estate are taxed under most circumstances when selling the property.
As the gains tax is not inflation indexed, your real returns are much lower. The decrease in the tax rates, the longer you own the property, is supposed to compensate for that, but if there is prolonged high inflation, after tax you may not have much gain at all.
Let‘s assume you buy something for 1 million and 5 years later you sell it for 1.5 million with 30% capital gains taxes (150k). So you end up with 1350k net. If inflation is above 6.2%/year, those 1350k are worth less than 1000k at the beginning.
The less money you put in as equity when you buy, the more monthly payments go up when interest rates move. In countries where variable rates are used a lot it is not unreasonable to expect 100% increase in monthly payments, not CH I guess.
Another rate hike is expected in Q1 2023, could be 0.25% or 0.50% according to experts because swiss people purchasing power is supposedly way too high despite the increased energy, housing and healthcare insurance costs.
Given a 1.25% or 1.5% Saron rate, add 0.6% bank margin and it comes close to 2%, which corresponds to 2 or 3 years fixed mortgage rates.
A couple of months ago, I saw no reason to choose a short term fixed rate over Saron, I am not so sure about it now…
Will it stay at 2% for 2 or 3 years, though? Maybe, maybe not. The banks do their calculations when they offer fixed rates; they take into account how they expect rates to evolve. They could be wrong or they could be right but I don’t see a compelling reason to think I am better than them at guessing what future rates will do.
That is to say, I would not frame the question as a “which solution will cost me the less money” but as "fixed rates are insurance against rising interests, do I want/need to purchase that protection or am I not interested in such a product?
Edit: that last question should be assessed outside of any guess regarding future rates, except for anticipating if there is a threshold at which the interests would become unsustainable for me, at which point, the insurance is worth it (the insurance being just as well worth it if I want to have known costs in the future rather than fluctuating ones).
I agree but my point is that Saron and 2-3 years rates are about to get so close that Saron is no longer a no brainer (at least for me).
The Saron option felt much more attractive 2 rate hikes before. At that time, fixed rates already had the entirety (or a large portion) of the future rate increases priced in while Saron was still below 0%. As a result, risk/reward was largely in favor of Saron, but it doesn’t seem so obvious now.
The only point in time when you can compare which one was cheaper is at the maturity of the 10 years and compare what you paid vs what you would have paid with the other product over the same period. If you take a SARON anyway you speculate and it’s always a matter of identifying your risk profile / how flexible you want to be. Given that mortgages in CH eventually mature and you need to renew, the security offered by fix rate mortgages is anyway limited as you’ll eventually be exposed to a new rates at some point. It’s all the more true that the vast majority of borrowers have mixed maturities and end up renewing part of their mortgages every 3 years.
Lots of Bigger player have to sell RE cause Stocks are down and the need to balance the portfolio to keep the Stock/ Real Estate ration in balance. But this sell pressure will come in forms of funds or trash Real Estate…