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People in Switzerland and around the world suffer from inflation. To control inflation, national banks around the world are raising interest rates. An interest rate of 4 percent has been applied to the eurozone since June 2023. It is already within a target range of 5 percent in the UK, and between 5 and 5.25 percent in the US.
With a key interest rate of 1.75%, Switzerland lags significantly behind by comparison. “Inflation is significantly high in many surrounding countries,” says Patrick Schnorf, 48, partner at real estate consulting firm Wüest Partner. However, the five rate hikes of Swiss National Bank SNB also leave their mark on Switzerland. Monetary policy has an impact on the housing market. Mortgage interest rates increase with the prime interest rate, which makes buying a home significantly more expensive.
Housing loan interest of up to 7%
In Switzerland, home buyers currently have to pay about 3 percent for a mortgage. It is between 4 and 5 percent in other European countries, 5 percent in the UK and 7 percent in the USA. So Switzerland lags behind here as well. Still, the increase in housing finance prices has an impact.
“The rise in interest rates has led to a significant slowdown in real estate demand,” says Schnorf. However, the interest still exceeds what is presented here. At the same time, fewer new apartments are under construction than in a long time.
Interest rate shock caused prices to fall
Residential and investment property prices are falling in other countries, while in Switzerland they therefore remain fairly stable. “Overall, there are no price drops to be observed or expected,” Schnorf says.
Why? On the one hand, of course, because the effect of inflation in Switzerland is relatively moderate. The US and UK interest rate shocks are much more severe. In Switzerland, more damping elements are helping the property market land on soft ground.
This includes restrictions on lending, such as the affordability rule. In other countries this is missing. This has led to real estate prices falling for some time, for example in Germany but also in the USA. Simply because many can no longer afford higher interest rates.
Switzerland remains stable
Is there a much-discussed real estate bubble in Switzerland? And if so, what could be causing them to explode? “Our residential real estate is in an overvalued area, but not in a bubble,” says Claudio Saputelli, 53, head of real estate analysis at UBS.
Rising mortgage rates have slowed the rise in home prices, but this is a healthy development. “You have to see where we’re coming from,” Saputelli says. Real estate prices skyrocketed during the pandemic process. “While the explosion marks are now visible, there is no major fix in sight.”
Is the worst over?
According to UBS, further rate hikes by SNB won’t change anything. “We do not expect any major corrections in the hosting market,” Saputelli says. The bank currently expects the SNB to cut interest rates again from the second half of 2024. “Everything is temporary, inflation pressure is gone.”
This is good news for homeowners. Mortgages should therefore drop quite a bit again. UBS expects them to drop below 3 percent in the next 12 months.
Source :Blick
I’m Tim David and I work as an author for 24 Instant News, covering the Market section. With a Bachelor’s Degree in Journalism, my mission is to provide accurate, timely and insightful news coverage that helps our readers stay informed about the latest trends in the market. My writing style is focused on making complex economic topics easy to understand for everyone.
