Mortgages The SARON – and SARON mortgages – are coming

The LIBOR benchmark rate will be replaced by the SARON at the end of 2021. What will change for you? Answers to key questions.

by UBS Insights 14 May 2020

The LIBOR (London Interbank Offered Rate) is still the most important interest rate in the global financial system. It is used for loans and mortgages, including the UBS Libor Mortgage. In mid-2017, the British Financial Conduct Authority announced that it would only support the determination of the LIBOR until the end of 2021. This decision triggered the search for a new benchmark rate to replace the Libor in all the financial markets affected. The solution for Switzerland is called SARON.

What does SARON mean?

The SARON (Swiss Average Rate Overnight) has existed since 2009 and is calculated on the basis of completed transactions and binding quotes (buy and sell prices) in the Swiss money market. It reflects the general interest rate level for short-term funds in Swiss francs.

The calculation methodology was developed by the Swiss National Bank (SNB) and SIX Group Ltd, which operates the infrastructure for the Swiss financial center. The SARON can be viewed by the public and meets the requirements for international benchmark standards.

Does UBS offer a mortgage based on the SARON?

On 11 May 2020, we launched the UBS SARON Mortgage. Since 15 June 2020 we have also offered the UBS SARON Flex Mortgage – a solution with additional flexibility options. Both SARON mortgages are open-ended, flexible and market-oriented forms of financing which complete our range of mortgages.

What are the advantages of the UBS SARON Mortgage or UBS SARON Flex Mortgage?

They are based on a transparent interest rate in line with market conditions and offer two advantages: firstly, you benefit from an unlimited contract term. Secondly, you can protect yourself against rising interest rates at any time by converting your SARON mortgage into a UBS Fixed-rate mortgage within just a few working days. In addition, by combining several mortgages with different terms, you minimize the risk of having to renew the entire mortgage in one go in the event of unfavorable interest rate changes. The UBS SARON Flex Mortgage offers the additional option of exceptionally being able to reduce the loan amount once per calendar quarter without any fees.

Who are the UBS SARON Mortgages suitable for?

Both are money market mortgages with a variable interest rate. Compared with interest rates for longer-term financing, money market rates are generally lower, but can change quickly. This makes the UBS SARON Mortgages particularly suitable for clients who actively follow events on the money and capital markets and expect interest rates to fall or trend sideways.

All the facts about the UBS SARON Mortgages at a glance

Would you like to take a detailed look at the UBS SARON Mortgage or UBS SARON Flex Mortgage? We have put together a summary of the most important information for you.

Would one of the UBS SARON Mortgages suit me?

Your client advisor will help you to find the right financing that is individually tailored to your needs. Your ideal mortgage mix depends on criteria including your financial situation, your needs and the current interest rate environment. Please do not hesitate to contact your client advisor so that you can together determine your ideal mix.

How do I convert my UBS Libor Mortgage into a UBS SARON Mortgage or UBS SARON Flex Mortgage?

Your client advisor will inform and advise you about the procedure for converting your UBS Libor Mortgage by the end of 2021 at the latest. Alternatively, you already have the option of converting your UBS Libor Mortgage into a UBS SARON Mortgage or UBS SARON Flex Mortgage, either in full or in part, at the end of the fixed-rate period – i.e. within 3, 6 or 12 months. To do so, please contact your client advisor directly.

Do you have questions about the UBS SARON Mortgages?

  • If so, contact your client advisor. He can advise you in situations such as these:
  • You are interested in the UBS SARON Mortgages and would like to find out more about them.
  • You want to convert all or part of your existing Libor mortgage into a UBS SARON Mortgage or UBS SARON Flex Mortgage at the end of the fixed-rate period.
  • You would like to find your ideal mortgage mix – taking into account all the different aspects such as term, flexibility etc.

How is interest calculated on UBS SARON Mortgages?

The SARON is a daily rate and is valid for the overnight interest-rate period. Interest settlement periods of three months are still offered so that you as a client do not have to pay interest daily. The “Compounded SARON” benchmark rate is used to determine the interest rate payable at the end of a quarter. This is calculated at the end of this period from the average of the SARON interest rates compounded daily. You can consult and check the “Compounded SARON” calculation method on the SIX website.

How has the “Compounded SARON ” developed compared to the 3-month CHF Libor over the past few years?

Historically, the 3-month CHF Libor and the “Compounded SARON ” have progressed in a very similar way, although it can be observed that the “Compounded SARON ” has been significantly less volatile in times of crisis. Among other things, this is due to the fact that the “Compounded SARON ” is based on secured transactions and the CHF Libor on unsecured transactions. Transactions backed by collateral have a lower counterparty/loss risk than unsecured transactions.