|  Ramzi Chamat

Resilience and stability of the Swiss mortgage market.

The dynamics of the Swiss mortgage market are a fascinating subject of study, even more so in a fluctuating global financial environment. Unique in its kind, this market is distinguished by its robustness and its ability to navigate through increases in interest rates. This analysis looks at the different aspects that make the Swiss mortgage market a model of resilience and attractiveness for investors.




Swiss mortgage debt, although the highest in the world, reveals an impressive image of resilience. This article explores the regulatory mechanisms, fiscal policies, and lending practices underpinning this exceptional resistance. We will also analyze the impact of variable interest rates and comparisons with other European markets, to better understand why the Swiss mortgage market remains a haven of stability and opportunities in an ever-evolving financial landscape.



I. Regulation and Resilience to Interest Rate Hikes 


Switzerland has established an effective regulatory framework for its mortgage market, making it particularly resilient to interest rate fluctuations. This aspect is crucial, especially when comparing Switzerland to other European countries. Moderate use of money market mortgages and solid regulation contribute to this robustness, allowing the market to remain stable and attractive for investors, even in a context of rising rates. This regulatory system is manifested through policies such as the "loan-to-value" (LTV) and "loan-to-income" (LTI), ensuring prudent risk management and adequate financial capacity of borrowers.



II. Market Stability and Attractiveness for Investors 


The Swiss real estate market is distinguished by its low volatility and tendency to maintain stable price growth. This characteristic makes it particularly attractive to investors. Market stability is supported by moderate inflation and well-managed real estate price policy. In this context, Switzerland positions itself as a choice market for investors looking to diversify their portfolios, particularly in an environment where interest rates are rising globally.



III. International Comparisons and Financial Capacity 


In terms of financial capacity, Switzerland stands out with strict lending rules, contrasting with those of other European countries. This rigorous approach, particularly in managing "loan-to-value" (LTV) and "loan-to-income" (LTI), strengthens the financial stability of the Swiss mortgage market. Comparing Switzerland with countries like the Netherlands, Denmark, and Sweden, we observe more prudent management and better risk control in Switzerland, despite a high level of mortgage debt.



IV. Regulations on Advance Rates and Amortization 


The Swiss mortgage market is characterized by specific limitations on advance rates and distinct amortization rules. These policies contribute to more prudent mortgage management, thus maintaining manageable debt levels and limiting financial risks. Switzerland stands out with its unique approach to advance rates, which only need to be reduced to two-thirds through amortization, a practice less rigid than in other European countries.



V. Fiscal Impact and Advantages of Borrowing 


The Swiss tax structure plays an important role in managing mortgage debt. The deductibility of mortgage interests, although criticized by foreign observers, offers significant financing advantages. However, this deductibility is not directly correlated with the level of mortgage debt. In Switzerland, the taxation of a fictitious income, known as "rental value", depends on the form of financing and can influence the attractiveness of credit amortization.





The Swiss mortgage market proves to be a pillar of stability and resilience in the European financial landscape. Despite high mortgage debt and a low homeownership rate, effective regulations, prudent risk management, and advantageous fiscal policies create a conducive environment for investors. The moderation in the use of variable-rate mortgages, coupled with a conservative market structure, affords Switzerland a prime position for portfolio diversification and investment in a context of rising interest rates.


Source : UBS

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