UBS launches first Saron real estate financing transactions

UBS launched Saron real estate financing worth more than CHF 25 million. The first of these financings were provided as part of a pilot project, the bank says. The transaction was concluded with the project developer Halter and the investor Senioresidenz, according to the statement.

During the coming year, UBS says it plans to launch Saron mortgages, with other Saron products to follow starting in 2021.

The background to the changes is that in the wake of the financial crisis, transactions in the interbank market fell and the UK Financial Conduct Authority announced that it would no longer support Libor (London Interbank Offered Rate) as of December 31, 2021. Market participants then began to identify alternative reference interest rates. In Switzerland, the responsible national working group recommended Saron as the successor to CHF Libor.

The Saron (Swiss Average Rate Overnight) is calculated daily on the basis of completed transactions and prices in the Swiss money market and is administered by the SIX Swiss Exchange. In order to obtain a reference interest rate over a term from the daily rates, the so-called Saron Compound is formed. This 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 part of credit products in Swiss francs.

According to UBS, the switch from Libor- to Saron-referencing products represents a paradigm shift in the credit and mortgage business, as in the future the reference interest rate will only be known at the end of the interest period. Nevertheless, the product changeover will not result in any significant financial changes for clients, because Libor and Saron have hardly deviated from each other in the past, it said. As with Libor, Saron products are also based on a published reference interest rate plus an individually defined margin. (ah)