Saron replaces Libor mortgages in Switzerland

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The end of Libor is in sight: the UK's financial regulatory body, the Financial Conduct Authority (FCA) will withdraw its support of Libor on December 31, 2021. The National Task Force (NAG) investigating the Swiss National Bank's reference interest rates made its first recommendations for Swiss financial institutions about preparing for the time after Libor. In specific terms, Swiss banks are advised to already launch products now that are based on Saron rather than Libor.


Current mortgage rates

What is the difference between Saron and Libor?

Libor (the London Interbank Offered Rate) is the rate used by banks to lend money to other banks. Libor is not supported by any actual transactions, but simply by agreements between the banks. This lack of transparency is one of the reasons why Libor is considered to be vulnerable to manipulation. Saron (the Swiss Average Rate Overnight) is a rate that is based on daily transactions and is therefore considerably more transparent. Looking at the Libor and Saron interest rates, it is clear that these hardly differed in the past.

How are three- and six-month rates determined for Saron?

Saron is usually determined as a daily rate, so the question is how the interest rate for three- and six-month loans should be calculated. The financial institutions now have to decide how they wish to handle this. The banks also have to decide whether the interest rate calculation should be based on the past three or the next three months. With the first method, customers will know how much interest they will have to pay, but this is not the case for the second method.

What effect will the switch from Libor to Saron have for mortgage holders?

It is already impossible to take up new money market mortgages based on Libor from some financial institutions. The current alternative to a Libor mortgage would be a fixed-rate mortgage with a relatively short term of two to three years. Provided that the banks will charge margins for Saron mortgages that are comparable to those currently charged for Libor mortgages, mortgage holders can expect similar conditions to those that apply at present. It can be assumed that a legally secure solution guaranteeing that mortgage holders will not suffer any disadvantages from the switch will be applied to past Libor mortgages whose terms go beyond December 31, 2021.

What are the next steps?

Not all questions concerning the switch to Saron has been cleared up. The NAG intends to present specific models for defining three-month and six-month interest rates in good time. While Switzerland has already found a successor to Libor with Saron, the same is not true for many other currency areas. The US, EU, United Kingdom and Japan still have to find a suitable replacement for Libor.

Current mortgage rates

Libor mortgage from 0.55%
Fixed-rate 10 years from 0.70%
Fixed-rate 5 years from 0.45%

The displayed interest rates are the best rates currently available. Your personal interest rates may vary depending on LTV, affordability, mortgage amount and the location of the property.