Swiss property marketplace: what you need to know
In 2024, the interest rates of banks fell significantly after a few increases. What does this mean for the property market? Comparis explains.
05.11.2024
iStock/Michael Derrer Fuchs
1. What is the current situation on the Swiss property market?
The Swiss property market is influenced, among other things, by Swiss monetary policy and the general interest rates.
There have been some changes in Swiss interest rate policy in recent years:
The Swiss National Bank (SNB) significantly increased the key interest rate several times in 2022 and 2023 due to increased inflation.
Things changed in 2024: after the peak of 1.75%, the key interest rate was lowered by 0.25 percentage points in March, June and September.
At the moment, the key interest rate is 1%.
The moderate interest rate level supports the demand for real estate.
The mortgage rates affect the cost of financing a property. They are closely linked to the general level of interest rates, which is influenced by the monetary policy of central banks.
A general rule of thumb for the real estate market is:
If interest rates rise, mortgage rates rise.
If interest rates fall, mortgage rates fall.
2. How high is the demand for housing in Switzerland?
In recent years, property prices in Switzerland have risen overall.
However, growth has slowed since 2022. This is due in particular to the increased key interest rate in the meantime and the higher mortgage rates – combined with general economic uncertainties.
Overall, the Swiss real estate market has remained resilient. Even when the benchmark rates for fixed-rate mortgages reached a 10-year high in October 2022, demand remained fairly stable.
Important reasons for this high stability in the real estate market are:
High level of immigration: Switzerland has experienced strong immigration in recent years, which has increased the need for housing.
Increased construction costs: since 1998, construction costs have increased by 40 to 60%. This has made the creation of new properties more expensive and thus limited supply, which supports prices.
Low construction activity: new construction activity is declining – and this as demand increases. According to Baublatt, only 35,900 properties have been approved for construction in the last twelve months – the least in the past 20 years.
In a historical comparison, the interest rate level remained at a moderate level. For example, the rise in interest rates had only a limited effect on demand.
Demand for housing has remained stable. The reasons for this are high immigration, increased construction costs and relatively low construction activity in recent years.
3. Are falling interest rates causing property prices to rise?
Since June 2024, mortgage interest rates have decreased again. Are property prices rising faster now?
This is not so easy to answer. The development of property prices depends not only on financing costs, but also on other factors.
These include for example:
Immigration
Construction activity
Construction costs
Range of properties available
Economic situation
Demographic change
What does this mean?
A slight increase in price levels can be observed for 2024. Lower mortgage rates could further boost the demand for real estate in the future.
Investment properties are more sensitive to interest rate fluctuations
Investment properties tend to be more sensitive to interest rate fluctuations than residential properties.
If the mortgage rates of an investment property rise without a corresponding increase in rents, the chances of a property earning a return are reduced.
Conversely, falling mortgage rates increase attractiveness, increase demand and can increase market value. Investors then benefit from more favourable financing conditions and higher return opportunities.
4. How big is the risk of a property crash?
At the end of the 1980s and the beginning of the 1990s, vacancy figures for Swiss real estate rose. There was too little demand for housing. The bursting property bubble at the time directly led to a real estate crisis.
Prices fell by up to 40% in some areas. Mortgage borrowers and investors struggled. Banks lost amounts in the double-digit billions due to write-downs.
High imputed interest rates protect against crisis
This situation is unlikely to be repeated so quickly at present. This is because banks expect an imputed interest rate of 5% when granting mortgages. They therefore check whether the mortgage would still be affordable to you as a borrower even at this high interest rate.
According to the Comparis mortgage barometer, the interest rate for 10-year fixed-rate mortgages is currently under 2%. Currently, mortgage rates are therefore significantly below the calculated interest rate.
Increasing loan-to-value ratios should not become a problem
If the value of the property falls, the loan-to-value ratio will automatically increase. This means that the mortgage’s share of the total value of the property increases. Then there is often a discussion about mortgage lenders demanding additional payments from the borrower.
However, this is hardly feasible in practice. For this to happen, the change in value of the property would have to be proven. And that is not possible – at least until it is actually sold.
5. What is the significance of interest rate fluctuations when choosing a mortgage?
Interest rate fluctuations influence mortgage rates. Therefore, it is important to know whether a stable fixed-rate mortgage or a flexible Saron mortgage is more suitable for you.
The fixed-rate mortgage offers stability and protection against interest rate increases, but is less flexible and more expensive when interest rates fall.
The Saron mortgage is more flexible and cheaper when interest rates fall, but carries the risk of sudden increases in interest rates. The choice depends on your willingness to take risks.
The majority of Swiss property owners prefer fixed-rate mortgages. They offer security and predictability.
A 10-year fixed-rate mortgage currently costs 1.5–2.1% per year (as at September 2024).
6. What questions should potential property sellers ask themselves?
Even if you see your property as a long-term investment, you may wish to sell it at some point. However, when is the best time to sell a property? And how do you go about it? The following questions can help you decide.
When do you plan to sell, and how do you expect prices to develop until then?
No one can accurately predict market trends. If you are considering the future sale of your property, you should think early on about possible market scenarios and their impact on your plans.
In the past, different property price trends have continued for many years. It may therefore be difficult to simply “sit out” a phase.
Regardless of the current market situation, acting with caution and foresight pays off. If there is suddenly too much time pressure, you may have to sell your property below the market price or market value.
Selling a privately held home or land at a profit means paying a special tax known as property gains tax. In certain circumstances, this property gains tax may be deferred. Here, too, good planning pays off.
Is my sales strategy the right one?
Deciding on the price of a property is not an easy task. If you have already advertised your property and had little interest, you should rethink the price.
Free property valuation
Here you can find out how much your home is worth and get an initial idea of a fair market price.
7. What questions do potential buyers have to ask themselves?
The fall in mortgage rates should prompt many potential homeowners to realise their plans in a timely manner.
Historically, the interest burden is currently moderate. This is seen in the interest rate trend for mortgages. As a comparison: in 2008, for example, the interest rate for ten-year fixed-rate mortgages was 4.65%.
Important questions when buying a property
Am I willing and able to pay for my dream home or apartment in the long term if it has to be refinanced with a new and perhaps more expensive mortgage?
Does the selling price reflect the current market situation, or is it too high?
Is there any way of negotiating the price down?
Should I opt for a fixed-rate mortgage or a Saron mortgage?
A professional consultation – for example through our mortgage partner HypoPlus – provides answers. Professionals cannot predict the future. But they can go through different financing options and scenarios with you and thus make the decision easier.
This article was first published on 25.07.2022
