Beyond LIBOR

What will happen once LIBOR is gone?

The use of the LIBOR rate as the reference rate for LIBOR mortgages is expected to be discontinued at the end of 2021. SARON (Swiss Average Rate Overnight) was recommended to succeed CHF LIBOR as the new reference rate for mortgages in Switzerland.

UBS is currently working on developing a successor product and plans to launch the new UBS SARON mortgage sometime in 2020.

Current UBS LIBOR mortgage clients will be notified of the switch in due course.

Key information about SARON

SARON (Swiss Average Rate Overnight) was set up in 2009 and is calculated on the basis of completed transactions and binding quotes (buy and sell prices) in the Swiss money market.

The calculation method was developed by SIX Group AG (SIX) in collaboration with the Swiss National Bank (SNB). SARON is publicly available, robust and meets the requirements of international benchmark standards. It is calculated and published each day by SIX, which operates the infrastructure for the Swiss financial market, immediately after the close of business (18:00 UTC).

UBS plans to launch the new SARON mortgage sometime in 2020.

Current UBS LIBOR mortgage clients will be notified of the switch in due course.

As described above, SARON is an overnight rate used to calculate interest on money loaned from today to tomorrow.

UBS plans to use SARON to calculate mortgage interest. We will still offer three-month interest settlement periods so that clients do not have to make daily interest payments. SIX (the benchmark administrator) offers a “SARON Compound” reference interest rate for determining the interest rate to be paid at the end of a settlement period. It is calculated from the average of the daily SARON rates, as determined at the end of the period.

For the SARON mortgage, that means the interest rate and thus the interest payments have to be calculated on the second to last day of the interest period, and not at the start of the period.

The method for calculating the “SARON Compound” was developed by SIX in collaboration with the SNB and can be accessed on SIX’s website (link) at any time for verification calculations.

Yes. The current discussion about replacing LIBOR is not currently affecting UBS’s product range. New LIBOR mortgages can still be concluded.

New LIBOR mortgages contain a clause stating what will happen if the CHF LIBOR becomes unavailable as a reference interest rate before the contract expires.

The procedure for the conversion of current UBS LIBOR mortgages will be announced in due course.

As a general rule, once the new SARON mortgage has launched, clients will have an opportunity to convert all or part of their LIBOR mortgage into a SARON mortgage at the end of the fixed-interest period (that is, within 3, 6 or 12 months).

Alternatively, clients can contractually transform all or part of their LIBOR mortgage into a multi-year fixed-rate mortgage at the end of the fixed-interest period.