UBS provides first SARON real estate financing in Switzerland

Zurich, 29 November 2019 – The first SARON real estate financing as part of a pilot project for selected clients is a milestone for UBS in preparing for the planned introduction of new SARON products from 2020 onward. With this transaction, UBS is assuming a pioneering role in Switzerland and is gaining, together with its clients, important knowledge and experience for its future product range.

UBS is actively involved in the global introduction of alternative reference rates to replace LIBOR in the coming years and plans to offer its clients the first SARON mortgages as an alternative to LIBOR in 2020. Further SARON products are expected to follow in 2021.

"We are very pleased with having provided the first SARON real estate financing in Switzerland. Together with our clients, we are laying the foundation for the planned rollout of SARON products next year", says Axel Lehmann, President UBS Switzerland.

“We are proud to have concluded this groundbreaking transaction with UBS. It allows us to gain valuable experience with this new product even before its launch”, says Markus Mettler, CEO of Halter AG. Halter AG is one of the leading construction and real estate service providers in Switzerland with a focus on the design and implementation of development projects.

“With this pilot project, UBS has given us access to the latest financing products. It represents a unique opportunity that we were happy to grasp in order to get a head start in terms of both knowledge and experience”, says Peter Mettler, CEO of SenioResidenz AG, a leading real estate company with a focus on investing in selected properties, predominantly retirement homes and care facilities.

SARON (Swiss Average Rate Overnight) is a reference interest rate for Swiss francs. It is calculated daily on the basis of completed transactions and prices on the Swiss money market and is administered by SIX Swiss Exchange. Compound SARON is formed to obtain a reference interest rate from daily rates for a fixed term. It is calculated on the last day of the interest period from the average of the compounded daily rates and will be used as a reference for a large share of credit products in Swiss francs.

The switch from LIBOR (London Interbank Offered Rate) to SARON-referencing products represents a paradigm shift in lending and mortgage business, as the reference interest rate is now only known at the end of the interest period. Nevertheless, the product changeover does not result in any significant financial changes for customers. LIBOR and SARON have hardly deviated from each other in the past. As with LIBOR, SARON products are based on a published reference interest rate plus an individually fixed margin. In the event of negative interest rates, values of less than zero are not used for LIBOR or SARON products when calculating the client interest rate.

Since the financial crisis about ten years ago, the number of transactions in the interbank market has declined significantly. This raised questions about the sustainability of the LIBOR system. The UK Financial Conduct Authority announced in 2017 that it would no longer support LIBOR as of 31 December 2021. This accelerated the transition process, and market participants began to designate alternative reference rates for a sound and robust financial market. In Switzerland, the National Working Group on Swiss Franc Reference Rates has recommended SARON as the successor to CHF LIBOR.

UBS Switzerland AG