The replacement of the Libor has been on the horizon since 2011
After manipulations of the Euribor were uncovered in 2011, the suspicion manifested itself in 2012 that over 20 major banks worldwide had also deliberately manipulated the Libor for years. Because of its derivation, the Libor offered a great deal of potential for manipulation: the big banks report the average interest rates for which they can borrow money from other institutions. The banks are not required to deposit any collateral whatsoever, and the lowest and highest interest rates are not included in the calculation. As a result of the manipulation scandal, the Saron (Swiss Average Rate Overnight) became increasingly important. This is because, in contrast to the derivation of the Libor, the Saron is calculated on the basis of actual transactions (repo transactions) that are backed by collateral. Since the Libor is only calculated until the end of 2021 and the Saron has been set as the key interest rate for the Swiss currency area, many providers have been converting their mortgage business to Saron since the beginning of 2020.

The changeover leads to uncertainty among mortgage customers

In principle, the changeover only affects mortgage holders who have taken out a money market mortgage. Fixed-rate mortgages are not affected by the changeover. However, many banking institutions had already limited their money market mortgages to a term until the end of 2021 for some time, or had completely withdrawn mortgages with the reference interest rate from the Libor from their range. The money market mortgages based on the Libor must be converted by the end of 2021 either into a mortgage with the Saron as the reference rate or into a fixed-rate mortgage.

Conversions of this magnitude usually fuel the fear that customers could be faced with night parts. This is no different with the replacement of the Libor by the Saron. These are the concerns:

• Financial institutions could use the changeover to achieve a higher margin for themselves. However, in a low interest rate environment, where both Libor and Saron are below zero, the customer will only pay the bank's margin, even with Saron.
• Mortgages with the Saron as a reference interest rate could be more expensive for customers in the long term. In fact, the Saron has been constantly above the daily Libor rate for the last few years. This is despite the fact that the Saron is much less risky because the transactions are effective, hedged transactions. However, this only shows that the Libor has never correctly reflected the market with the estimated interest rates. However, since the daily rates are not relevant for the customers, only the three- or six-month rates are relevant. And here, historically, the Saron is much less volatile than the Libor and was always below the Libor
• The uncertainty of how Saron mortgages could develop when the interest rate environment returns to positive territory. As existing Libor mortgages will have to be converted by the end of 2021, it is very likely that the interest rate environment will not have returned to positive territory by then and that there will therefore be no changes for customers compared with Libor mortgages.