It was never cheaper to get a mortgage in Switzerland. The competition between providers is so intense that banks increasingly face difficulties to keep up.
The average benchmark for a 10-year mortgage was 1.2 percent at the end of March, according to a study published by Comparis, a Swiss online comparison service. Five-year mortgages have breached the 1 percent threshold, a «psychologically important» barrier, the company said on Tuesday.
The record-low benchmark interest rate combined with stiffening competition to weigh on the price of a mortgage. The 5-year mortgages can be bought more cheaply than a flexible rate attached to the Libor (table in German).
Squeezing Out Banks
The Libor-linked mortgages normally are sold by banks, which have to generate a higher rate of return on invested capital than pension funds or insurers.
«Insurers and pension funds increasingly compete with banks for the business, sometimes offering substantially lower rates,» said Frédéric Papp, a finance expert at Comparis. «They are forced to up the ante as real estate investments and the mortgage business generate a reasonable rate of return in the asset allocation emergency that has persisted for years.»
Concern About Risks for Lenders
The Swiss National Bank as well as the financial market regulator repeatedly warned about risks in the property market, and in particular in the business with so-called investment properties. With the number of vacant apartments in urban regions increasing steadily and with prices rising from already high levels, banks face an increased risk of defaulting clients.
The government is looking into ways that will reduce the risk banks are taking and may soon propose added safeguards that will make the purchase of investment properties less easy.
