|  Ramzi Chamat

The decline in mortgage loans: A new reality in the Swiss real estate market.

The Swiss real estate market, traditionally dynamic, is faced with an unprecedented phenomenon: the significant decline in mortgage loans. This article delves into the causes and consequences of this trend, exploring the implications of rising interest rates since 2022 and how market participants will respond.




In a context of rising interest rates, the Swiss real estate market is undergoing a notable transformation. The decline in mortgage loans, coupled with a continuous increase in property prices, paints a complex and unexpected economic landscape. This article provides a detailed analysis of this evolution, examining the underlying factors, implications for buyers and lenders, and future prospects for the Swiss real estate market.



I. Impact of Rising Interest Rates on Mortgage Loans


The decision of the Swiss National Bank (SNB) to significantly increase its key interest rate, from -0.75% to +1.75% between June 2022 and June 2023, marked a decisive turning point for the Swiss real estate market. This rise led to a notable decrease in the number of new mortgage loans, with a drop of 11.6% in one year for personal use housing. This phenomenon, reflecting the real estate market's sensitivity to monetary policies, underscores the direct correlation between interest rates and the purchasing capacity for real estate.


2. Market Data Analysis


The analyzed data indicate an immediate market reaction to the BNS policy changes. The increase in the cost of credit, resulting from rising interest rates, has made the acquisition of real estate less affordable for many Swiss households. This situation has had the effect of curbing the demand for mortgage loans, especially for new buyers who are particularly sensitive to interest rate variations.


3. Observations from Vincent Clapasson


Vincent Clapasson, an expert at Wüest Partner, notes that five- and ten-year mortgage rates have almost tripled in a few quarters, moving from about 1% to 3%. This substantial increase in mortgage rates has directly impacted households' borrowing capacity. As a result, many potential buyers have been unable to finance the purchase of their homes, leading to a decline in loan demand.


4. Economic Consequences


This evolution of mortgage rates has profound economic implications. On one hand, it has the effect of cooling the real estate market, reducing the number of transactions and slowing price growth in some regions. On the other hand, it impacts the construction and renovation sectors, significant economic sectors in Switzerland, due to the decrease in demand for new housing and renovation projects financed by mortgage loans.


5. Long-term Implications


In the long term, this rise in interest rates could lead to a rebalancing of the Swiss real estate market. If property prices had previously experienced continuous growth, the decrease in mortgage loan demand could lead to a stabilization, or even a decrease in prices in certain regions. This could also open opportunities for buyers who were previously excluded from the market due to soaring prices.


6. Banking Sector Response


Swiss banks, in response to this situation, might need to review their lending strategies. Faced with a riskier market and fewer potential clients, financial institutions might adjust their credit granting criteria or offer innovative mortgage products to attract new customers.


In conclusion, the SNB's interest rate hike has caused a significant slowdown in the mortgage loan sector. This development, while posing a challenge for the Swiss real estate market, could also be an opportunity for a transition towards a more balanced and accessible market for a larger number of potential buyers.



II. Persistence of Rising Real Estate Prices


Although the mortgage market has experienced a notable downturn, real estate prices in most French-speaking cantons have continued to rise. This persistent trend raises important questions about the underlying dynamics of the Swiss real estate market. Here, we examine the reasons for this price increase, particularly for Floor Ownership Properties (PPE) and individual houses, and analyze the factors contributing to this complex reality.


1. Sustained Demand for New Constructions


One of the key drivers of the rise in real estate prices is the constant demand for new constructions. In Switzerland, especially in the French-speaking cantons, demographic growth and ongoing urbanization generate an increasing need for new housing. This demand is particularly strong in urban and peri-urban areas where space is limited and where the construction of new properties is often synonymous with high quality and modernity. This factor contributes to keeping prices high, despite the decrease in the number of mortgage loans.


2. The Appeal of Second Homes


The demand for second homes remains another significant factor. In Switzerland, the appeal of mountainous regions and lakes for second homes does not diminish. These real estate properties are often sought after by national and international buyers with significant financial means, contributing to the price increase in certain regions, regardless of general mortgage market trends.


3. Price Differences Between Apartments and Individual Houses


The price difference between apartments (PPE) and individual houses is also a determining factor. PPEs, generally more affordable than individual houses, are particularly popular among buyers for whom individual houses remain financially out of reach. This sustained popularity for apartments contributes to their price increase, even in a context of decreasing mortgage loans.


4. Macroeconomic and International Factors


Other macroeconomic and international elements also play a role. Switzerland, with its political and economic stability, attracts foreign investors who see Swiss real estate as a safe and profitable investment. This external demand supports prices, especially in the high-end segments and sought-after locations.


5. Future Outlook


The continuous increase in real estate prices, despite the downturn in mortgage loans, raises the question of the sustainability of this trend. If prices continue to rise, this could exacerbate housing affordability issues for certain segments of the Swiss population and potentially lead to market adjustments in the medium or long term.


In summary, the persistent rise in real estate prices in French-speaking Switzerland and other regions results from a combination of factors, ranging from sustained demand for new constructions and second homes to the price difference between different types of properties. This complex market dynamic requires continuous observation to anticipate future developments and their impact on housing accessibility in Switzerland.



III. Towards a Potential Market Adjustment


The growing divergence between listed sale prices and actual transaction prices in the Swiss real estate market suggests a market in a phase of potential adjustment or correction. This section examines the implications of this trend, based on the Financial Stability Report of the Swiss National Bank (SNB) and observations by Vincent Clapasson from Wüest Partner.


1. Disparity Between Supply and Demand


A key element of this potential market adjustment is the mismatch between supply and demand. While sale prices remain high, reflecting sellers' expectations, transaction prices are beginning to show signs of stabilization or even decline. This trend indicates that buyers are becoming more cautious and more negotiating in a market adjusting to the new economic reality, particularly in response to rising interest rates and the decrease in mortgage loans.


2. The SNB's Financial Stability Report


The Financial Stability Report published by the SNB provides important insights into the current and future state of the Swiss real estate market. According to this report, the increase in interest rates and more challenging market conditions could lead to a decline in residential real estate prices. This phenomenon is already observed in certain market segments, notably investment residential properties, where a slight decline is noted.


3. Perspectives of Vincent Clapasson


Vincent Clapasson also points to a growing gap between supply and demand. This observation is particularly relevant in a market where sellers maintain high prices, while buyers, facing reduced financial accessibility and increasing economic uncertainty, become more reluctant to accept these prices. This dynamic could lead to a gradual readjustment of prices to a level more in line with buyers' capabilities and expectations.


4. Potential Impact on the Real Estate Market


If this correction trend is confirmed, the Swiss real estate market could experience significant changes. Sellers might be forced to revise their price expectations to align their offerings with market reality. On the other hand, this situation could offer new opportunities for buyers who were previously excluded from the market due to high prices.


5. Long-Term Considerations


In the long term, an adjustment in the Swiss real estate market could lead to a stabilization of prices, and even improved accessibility for certain categories of buyers. However, this process could also be accompanied by challenges, especially for current owners who might see the value of their real estate decrease.


In conclusion, the prospect of a potential adjustment in the Swiss real estate market, suggested by the growing gap between sale prices and transaction prices, underscores the importance of continuous market monitoring. This readjustment could represent a turning point for the real estate market, offering both challenges and opportunities for industry players.



IV. Stabilization of Mortgage Rates and Borrower Strategies


After a period of rapid increase, mortgage rates in Switzerland seem to be entering a phase of stabilization. This development has significant repercussions on borrower strategies. Relying on data provided by Comparis, we explore how the stabilization of rates impacts the choices of borrowers, particularly regarding short-term mortgages like Saron mortgages and medium to long-term fixed rates.


1. Stabilization of Mortgage Rates


According to Comparis data, short-term mortgage rates, such as Saron mortgages, have experienced a period of stabilization. This trend contrasts with the previous rise and suggests a market adapting to the new economic reality. Simultaneously, medium and long-term fixed rates have slightly decreased, reflecting some relaxation in the real estate financing sector.


2. Borrower Choices


This rate stabilization directly influences borrower strategies. With stabilized short-term mortgage rates, borrowers might be more inclined to opt for Saron mortgages, attracted by the flexibility and potentially lower rates these products offer. On the other hand, the slight decrease in medium and long-term fixed rates makes these options more attractive for those seeking long-term financial security.


3. Advantages of Saron Mortgages


Saron mortgages, in particular, offer an interesting alternative in the current context. Their main characteristic is to reflect market fluctuations more directly, which can be advantageous in an environment of stabilized rates. For borrowers able to manage potential variations in their mortgage payments, Saron mortgages can offer substantial savings.


4. Considerations for Fixed-Rate Mortgages


Regarding medium and long-term fixed-rate mortgages, the recent rate decrease can encourage borrowers to lock in their rates, especially in a context where economic uncertainty remains a concern. The predictability of payments and protection against future interest rate increases are key factors influencing this decision.


5. Impact on the Real Estate Market


These changes in borrower preferences could have repercussions on the real estate market in general. An increased preference for short-term mortgages could stimulate demand in certain market segments, while the decrease in long-term rates could encourage long-term real estate investments.


The stabilization of mortgage rates and the adjustment of borrower strategies are key indicators of the evolution of the Swiss real estate market. By judiciously choosing between Saron mortgages and medium to long-term fixed rates, borrowers can optimize their real estate financing according to their specific needs and risk tolerance. This period of stabilization offers an opportunity for borrowers to reconsider and adjust their mortgage strategies in an ever-changing market.



V. Risks for Borrowers and Financial Stability Concerns


The current situation of the Swiss real estate market, characterized by rising interest rates and the stabilization of real estate prices, raises specific concerns regarding financial stability, particularly for borrowers with limited financial means. This chapter examines the increased risks for these borrowers, based on the analyses and forecasts of the Swiss National Bank (SNB) report.


1. Increased Vulnerability of Borrowers


The rise in interest rates has led to an increase in financial burdens for borrowers, particularly those with high loan-to-income ratios. These borrowers are often those who acquired properties during periods of low interest rates, maximizing their borrowing capacity. With rising rates, their monthly repayments increase, which can lead to financial difficulties, especially if their income situation has not improved proportionally.


2. SNB Report on Financial Stability


The SNB's report on financial stability highlights the risks associated with this dynamic. According to the report, a significant proportion of new mortgage loans have loan-to-income ratios that exceed critical thresholds, especially at a theoretical interest rate of 3%. This situation indicates increased vulnerability of these borrowers to a continuous rise in interest rates.


3. Implications for the Financial Stability of the Market


The increased vulnerability of borrowers has implications for the overall financial stability of the Swiss real estate market. A growing number of borrowers in difficulty could lead to an increase in payment defaults, negatively impacting banks and financial institutions. Moreover, this could lead to downward pressure on real estate prices if a significant number of properties had to be sold to cover payment defaults.


4. Considerations for Monetary and Regulatory Policies


This situation requires special attention from regulators and policymakers. It is crucial to closely monitor market trends and adjust monetary and regulatory policies to maintain a balance between economic stimulation and the prevention of excessive risks. Measures such as stricter lending criteria or incentives for loans with low loan-to-income ratios could be considered to protect the most vulnerable borrowers.


In conclusion, the risks for borrowers with limited financial means and financial stability concerns are crucial aspects to consider in the current context of the Swiss real estate market. A balanced approach, taking into account both the needs of borrowers and the overall health of the market, is essential to navigate this complex and evolving financial landscape.





The current dynamics of the Swiss real estate market, characterized by rising interest rates and their repercussions on mortgage loans, the persistence of rising real estate prices, and the stabilization of mortgage rates, present a complex and changing landscape. This situation raises several important questions and challenges for market players, including borrowers, investors, banks, and regulators.


The SNB's interest rate increase has had the immediate effect of reducing new mortgage loans, highlighting the market's sensitivity to monetary policies and the vulnerability of buyers, particularly those with low purchasing power. Paradoxically, this decrease in mortgage activity has not prevented the continued rise in real estate prices, fueled by strong demand for new constructions, second homes, and a marked preference for PPEs. This trend underscores the sustained attractiveness of the Swiss real estate market, despite economic challenges.


The recent stabilization of mortgage rates has led to an adjustment in borrower strategies, with a growing inclination for short-term mortgages, such as Saron mortgages, and a renewed appreciation for medium and long-term fixed rates. This evolution in borrower preferences could influence the real estate market at various levels, depending on the continuation of current trends.


However, these developments also raise financial stability questions, especially concerning borrowers with limited financial means. The increased vulnerability of these borrowers, combined with a potential continuous rise in interest rates, could increase the risk of payment defaults, with broader implications for the overall health of the real estate market and the Swiss economy.


In conclusion, the Swiss real estate market is at a crossroads. Policymakers, regulators, and market players must collaborate to navigate this evolving landscape, balancing economic stimulation with risk prevention, and ensuring the market's long-term sustainability and stability. Careful monitoring and continuous adaptation will be essential to maintain the balance and health of the Swiss real estate market in the coming years.



Source: Bilan

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