The decline in mortgage rates in Switzerland

A New Dynamic for the Real Estate Market under Basel III.

Since the end of 2024, mortgage rates in Switzerland have seen a significant decline, marking a turning point after a period of continuous increases since 2022. This decrease in mortgage rates, influenced by various economic and monetary factors, has had a substantial impact on the Swiss real estate market—especially with the entry into force of the new Basel III guidelines implemented by FINMA as of January 1, 2025.

Causes of the decline in mortgage rates

The Swiss National Bank (SNB) has played a key role in this development by lowering its policy rate several times. In December 2024, the SNB reduced its policy rate by 50 basis points, from 1.0% to 0.5%. This decision was driven by easing inflationary pressure and a moderate global economic outlook.

In March 2025, the SNB lowered its policy rate further to 0.25%, thereby reinforcing the downward trend in mortgage rates.

Consequences for the Real Estate Market under Basel III

1. Revitalization of Real Estate Investments: The drop in mortgage rates has made borrowing less expensive, stimulating real estate investments. Institutional investors, such as insurance companies and pension funds, continue to favor residential real estate—especially well-located properties that meet ESG criteria.
2. Increased demand: With reduced borrowing costs, many potential buyers find property purchases more accessible. This increase in demand may lead to higher real estate prices, particularly in sought-after areas.
3. Housing shortage: The decline in mortgage rates, coupled with ongoing population growth, is worsening the housing shortage in Switzerland. The advertised rent index rose by 6.4% year-over-year in Q2 2024. While this offers attractive returns for investors, it also presents challenges for households seeking affordable housing.
4. Price stability: The SNB’s monetary policy aims to maintain price stability while supporting economic development. Lower mortgage rates contribute to this goal by reducing financing costs for both buyers and property owners.

Impact of Basel III Guidelines

The new Basel III guidelines, implemented by FINMA as of January 1, 2025, introduce stricter capital and risk management requirements for banks. These rules aim to enhance financial system stability by increasing risk coverage through higher capital buffers and improving the transparency of capital ratios.

1. Capital requirements: Banks must now maintain higher capital levels to cover certain risks associated with mortgage lending. So far in 2025, banks have shown a preference for financing primary or secondary residences in the first mortgage tranche, for example.
2. Improved transparency: The new rules require greater comparability of published capital ratios, enabling investors and regulators to better assess the financial health of institutions.
3. Impact on mortgage lending: Standard approaches to mortgage risk assessment have been revised to be more risk-sensitive, which could affect the credit conditions offered to borrowers.

Outlook for 2025

Forecasts for 2025 suggest that mortgage rates will remain low, with ten-year fixed-rate mortgages expected to range between 1.45% and 1.65%. In the event of a return to negative rates—similar to the period from 2015 to 2022—it is not impossible that the ten-year fixed rate could approach 1%. This trend is likely to continue supporting real estate investment and sustaining strong demand for property in Switzerland.

The decline in mortgage rates since the end of 2024, combined with the new Basel III directives, has reinvigorated the Swiss real estate market, offering opportunities for investors while posing challenges related to housing shortages. The SNB’s monetary policy and FINMA’s regulatory measures play a crucial role in this dynamic, helping ensure price stability and supporting the Swiss economy.