Basel III Standards: Impact on Mortgages in Switzerland

What changes will the new Basel III standards bring?

The final Basel III standards, effective from January 1, 2025, in Switzerland, introduce significant adjustments to the Swiss Capital Adequacy Ordinance (ERV). The aim is to enhance international comparability and make capital requirements more risk-sensitive. For residential and commercial properties, new risk weights are being introduced, depending on the loan-to-value ratio and property use. Owner-occupied properties benefit from generally lower capital requirements, while rental properties with higher loan-to-value ratios face stricter rules. Additional information on the final Basel III standards can be found here on the State Secretariat for International Finance website.

How are risk weights for residential and rental properties changing?

Owner-occupied properties: Lower risk weights for loans with loan-to-value ratios below 60% (30%), while higher ratios require stricter capital requirements.

Rental properties: Loans up to 60% benefit from slight reductions (30%, previously 35%), but loans exceeding 60% are subject to significantly higher risk weights.

Construction loans and land purchases: Subject to higher requirements due to being classified as riskier.

Non-profit housing properties: These will now be treated like owner-occupied properties, resulting in lower risk weights.

What impact will the new standards have on mortgage lending?

The adjustments affect the profitability of certain types of loans:

Cheaper loans for owner-occupied properties: Lower risk weights incentivize more loans for owner-occupied homes, potentially leading to stronger competition and better terms for customers.

Higher costs for rental properties: Loans with high loan-to-value ratios are less attractive to banks and may carry higher margins.

Restrictions on construction loans: Stricter requirements could make financing construction projects more challenging and costly.

How will competition and financing costs change?

The Basel III standards are not expected to cause a significant increase in financing costs, as capital requirements remain stable overall. However, banks may adjust their strategies to focus more on profitable types of loans. This could lead to increased competition in the owner-occupied property segment, resulting in more attractive terms and lower margins for customers. Higher-risk loans, such as heavily leveraged rental properties, may become more expensive. For customers, carefully comparing offers will be crucial to securing the best terms.

How can HYPOHAUS support me?

HYPOHAUS specializes in the unique challenges of purchasing property in Switzerland. Our experienced team is here to assist you with all your questions on this topic. For your property financing, we leverage a broad network of financing partners to help you compare options and successfully secure your ideal mortgage.

A mortgage rate comparison with HYPOHAUS is free, non-binding, and saves you both time and money. Here is an overview of all HYPOHAUS services.