Is the housing market about to cool in Switzerland?: Mortgage demand falls significantly

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Nothing could shake up the Swiss housing market so quickly. It’s not even an interest rate earthquake. The end of the low interest rate era came almost two years ago. Mortgage interest rates sometimes doubled during this time. This means financing your own home can quickly become much more expensive. You may think that this situation will put pressure on housing prices in recent months. But so far there is no sign of this.

In fact, single-family house prices across Switzerland increased by 2.1 percent in the third quarter of 2023. This is shown by figures from Raiffeisen’s new real estate survey. “The long-awaited decline in real estate prices is still long awaited,” says Fredy Hasenmaile (56), chief economist at Raiffeisen.

Buyers are holding back

But there are now growing signs of a slowdown, according to the research. Buyers have become more cautious and are buying less than before. This is also reflected in the fact that significantly fewer new mortgages have been issued recently. The four largest banks, UBS, CS, ZKB and Raiffeisen, financed 17 percent fewer detached houses and 18 percent fewer apartments in the last four quarters than in the same period last year.

This corresponds to a decrease of almost one fifth. What are the reasons for this? “Fewer and fewer households are able to own their own homes,” says Hasenmaile. Affordability is increasingly becoming an issue due to rising interest rates and high home prices. And rents are becoming more attractive again. This means that demand is falling.

And as home financing becomes more expensive, homeowners are paying more on their mortgages. Although mortgage volume has not yet decreased, it is growing much slower than in previous years.

More and more people want to sell

“At the same time, the number of homes advertised is increasing,” says Hasenmaile. Because private property owners who own more than one property increasingly want to get rid of their properties. The buy-to-hire business model is no longer profitable. Mortgage interest rates are too high for that today. Unlike the rental market, the vacancy rate for residential properties is also increasing slightly. “We are observing that houses are advertised for a longer period of time, and some are not sold,” says Hasenmaile.

Price decreases are starting to be seen in some regions. For example, in the Bern and Eastern Switzerland regions, condominiums became slightly cheaper for the first time compared to the previous year. But price reductions are still limited. Home sellers also stick to price expectations; There are no signs of panic selling. But new figures show home buyers are no longer willing to comply unconditionally.

Choosing the right mortgage

If you still want to buy, you’ll have to make a difficult financing decision. Is the Sarong mortgage still worth it, or is a secure fixed rate mortgage a better solution? For real estate expert Hasenmaile, the answer is clear: “Security-focused homeowners currently need to take out a two- to three-year fixed-rate mortgage,” he says. These are the cheapest ones, with interest rates between 2.3 and 2.4 percent. And when it came time to extend it two years later, interest rates would have to drop a little again.

With an interest rate of 2.45 to 2.5 percent, a Saron mortgage is still cheaper than a ten-year fixed-rate mortgage, but Saron customers should expect further interest rate increases over the next few months.

Source :Blick