The new head of the Swiss National Bank (SNB) has said that the cost of buying a house in Switzerland can no longer be explained. House prices have more than doubled in the last two decades and there is no indication that costs will fall anytime soon.
Swiss house prices more than double in 20 years
According to the latest data, between 2003 and 2023 the average cost of a home in Switzerland rose by 117 percent. The collective value of Swiss mortgages also more than doubled, having increased by 110 percent during the same period.
With consumer prices rising by 11 percent, and gross domestic product increasing by 65 percent between 2003 and 2023, it means that the Swiss housing market has outpaced everything from economic growth to salaries.
Banks in Switzerland pour money into real estate
In July 2024, the SNB reported that 1,216 billion francs are now tied up in mortgages, more than double what was recorded in November 2005. Encouraged by low interest rates, the “Great Mortgaging” has led Swiss banks away from putting money in savings and loans to new entrepreneurs and tech, and towards becoming primarily real estate lenders. Today, 85 percent of all money lent in Switzerland is toward mortgages.
The similarities between the overlending Swiss housing market of today and the overinflated house prices and lending that helped crash the global economy in 2008 have not gone unnoticed. Indeed, a recent report from the Swiss bank UBS reported that Zurich was the third most likely to be experiencing a housing bubble, declaring that homes in the city are increasingly seen as a “luxury item” and “status symbol.” They warned that even though prices are sky-high, they will continue to rise in future.
New SNB head says lower interest rates will lead to vulnerability
However, despite the inflated prices, the new SNB head Martin Schlegel told Watson that the “risk of a correction has of course become smaller in the short term." Despite the higher mortgage interest rates seen in Switzerland until recently, even higher taxes, costs and fees have failed to sink the housing market.
"Real estate prices can no longer be explained," Schlegel added. He concluded that the lower interest rates would lead to “vulnerabilities” in the long term and warned banks and lenders to remain vigilant and careful when investing.