We take a look at the issue of rates for consumer credit and your mortgage.
Need a personal loan in 2024? What's changing?
The Ordinance on the Federal Act on Consumer Credit aims to set a course for the interest rates charged by banks and credit brokers.
What for?
Simply to protect the interests of the consumer.
As it is a quick and easy financing solution that also represents a greater risk for lenders, the interest rates charged are generally higher.
In order to avoid cases of over-indebtedness and to limit the emergence of unscrupulous players in the sector, a maximum interest rate is applied, a "cap".
Funding platforms are required to meet this milestone.
The mechanisms used to set the maximum rate are often linked to upward or downward trends in interest rates as well as the policy rate determined by the country's financial and political authorities.
It is for this reason that an increase in the maximum rate was decided and implemented from 1 January 2024. It will now be a maximum of 12%.
Is my credit impacted?
The potential application of this maximum rate is only relevant for contracts concluded after 1 January 2024. A contract signed before is therefore not impacted.
Need a mortgage? Are rates falling?
This is the question asked by many homeowners or future homeowners. Especially after the recent rise in mortgage rates after a period of historically low rates.
Inflation over the past two years has had a significant impact on interest rates. Depending on the duration of the contract, rates have been close to 4-5%, generating widespread concern about the ability of homeowners to repay if this were to last or even worsen in the long term.
The key interest rates decided by central banks in the United States and Europe were the triggers for this increase. These decisions were taken to counter a risk to the world economy caused by uncontrolled price increases.
Fortunately, the latest trends and figures show that inflation is stabilising or even falling. The consequence is a relative calm in the markets and a return to lower levels of applied interest rates.
And what about the Saron?
The Saron, the successor to Libor, bases its interest rate on the actual daily transactions on the Swiss money market.
This implies a certain degree of volatility that can work to the disadvantage of buyers opting to incorporate the Saron into their mortgage structure.
More advantageous than a fixed rate in 2023, the Saron rate has gradually caught up with the heights reached by these fixed rates.
It is more imperative than ever to get good advice on the advisability or risk of including a share of Saron in your loan.
What are the forecasts for 2024?
The current trend is rather downward and most financial institutions agree that rates will stabilize in 2024.
However, no one is able to guarantee this. What for?
First, inflation, although currently under control, is not fully stabilized.
Central banks will avoid cutting policy rates too hastily unless recessions are on the horizon.
This is the main indicator influencing borrowing interest rates in the countries concerned.
Unfortunately, the geopolitical reality remains extremely volatile.
The economic conflict between the United States and China continues to rage. The world's two major players are constantly fighting over access to cutting-edge technologies. The effects are devastating for Europe's growth recovery.
This has an impact on the climate of confidence in the financial sector.
To make matters worse, the recent elections in Taiwan have generated even more protests and provocations from the Chinese authorities. As Taiwan is a technological and industrial powerhouse in Asia, any impairment of its ability to produce and export would have significant consequences for global trade.
The conflict in the Middle East, the end of which does not seem to be in sight, as well as the risk of spreading to other territories in the region, do nothing to stabilize the markets. Added to this is the risk posed to maritime transport near Yemen; This prevents the passage of goods and could impact the entire supply chain.
Of course, the ongoing war in Ukraine continues to cause terrible loss of life but also economic damage throughout the region. As Russia is an important economic player but also a considerable military force, its collaboration with neighbouring countries such as China and even North Korea is a vector of uncertainty and fears about a potential way out of the crisis.
So yes, geopolitical events have an immediate influence on your mortgage rate and how it will evolve in the months and years to come.
Another alternative?
Despite this geopolitical reality, life must go on. Your projects don't wait and to make them a reality, funding is often necessary.
The route of a mortgage loan for a real estate project remains the first option.
Taking into account the current context, the choice of the contract term, the proposed rates and the formula with or without Saron, must be made judiciously.
However, if it is a project that requires little financing due to a large down payment or if we are talking about renovation or a reduced purchase amount, credit can be an alternative solution.
Of course, the rate is higher, but it is very likely that you will not reach the maximum rate imposed as described above. In addition, the rate granted remains fixed.
Other significant advantages are the absence of the obligation to justify the use of the loaned funds, less administrative management, the absence of a notarial deed and the simplicity and speed of execution of the payment of your money.
In addition, you have the right to change your loan formula or intermediary at any time, as well as free application and advice.
As always, a wise choice requires a good deal of thought and any decision must be made with respect to your budget reality and your ability to repay. Whether it's a mortgage or a personal loan, surround yourself with good advisors.
At Milenia, we will be able to guide you in the realization of your project. Free of charge and without obligation. Contact us to find out more!
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