Housing boom causes concern for the Swiss central bank

House prices in Switzerland are continuing to rise, to the point that the risk of a housing bubble could create serious losses if banks are not properly prepared, according to a spokesperson for the Swiss central bank. 

Risk of a housing bubble in Switzerland is growing 

The vice-chairperson of the Swiss National Bank (SNB), Fritz Zurbrügg, explained that although the housing market was continuing to heat up, the banks “should have sufficient capital buffers to absorb impending losses”. 

In August, the bank announced that house prices in Switzerland had increased by around 80 percent over the past 15 years, with real estate prices in the country being overvalued at 20 percent. 

However, the banks’ capital buffers should be enough to protect them from the increasing risk, meaning that even if house prices continue to rise and the property bubble grows larger, it “does not mean that a serious crisis will occur," Zurbrügg added.

Swiss central bank monitoring economic situation

The SNB has said that it is taking a “very close look” at capital buffers for banks, but believes that the risk of inflation being triggered by the housing market is low.

While low interest rates have created favourable conditions for those wanting to take out a mortgage to buy a house in Switzerland, the SNB predicts that up to 30 percent of new mortgage loans would be at risk of defaulting, should interest rates rise to 3 percent in the future. 

The SNB vice-chairperson also added that, although this risk to new mortgages is possible, there is no indication that interest rates will increase in the short term.