I guess the SNB’s bet is that margin call risk is greatly reduced via the 5% affordability check and requirement to amortise to 65% in 15 years i.e. the capital buffers
My belief is that many buyers of high value properties are unaware of the sensitivity of the resale price to interest rates like I tried to explain above up to -1M decline in price on 2.5M property. They may not default, but risk a hit to their NW
Totally. Nobody is aware that having real estate with a 80% mortgage means being 5x leveraged into the RE market. A -20% drop and your own funds are completely gone.
It’s why I’m not sure if I should buy something in the near future. Financial risk is enormous.
Everything is leveraged up much more than ever before. In the last cycle a 1% rate increase meant going from (say) 4 to 5%, or a 25% increase in interest cost. Today it means cost double
It also says:
The SNB believes that up to 30% of newly granted mortgage loans would be at risk of default should rates rise to 3%
That I don’t understand, because the banks calculate 5% to give you the mortgage.
Despite its warning, the SNB is not predicting an imminent collapse of the housing market.
If it’s not collapsing, prices will be the same or increase, right? 
Up to 2.5M to me it sounds more in the luxury area, that has a completely different market than <=1M
If you sell…same as stock, right?
Same as leverage on stocks and margin calls, yes.
-30% I’m good
Everyone keeps saying that interest rates won’t go up anytime soon. Do you think it will collapse anyway?
I have the impression that many people would like to purchase a house, but then with pure math, using numbers and prediction that nobody knows, they defend this theory.
If you don’t care to live in a small (ugly and old) apartment and just work, you will save a lot of money and probably you can retire ad 40, but what about the path to get there?
I think that since I won’t live 1500 years, and after 65 most probably the life will be not so great, why not try to get something that gives me a great benefit?
Of course for someone else it can be completely different, but the pros to buy a house (not from financial prospective) can justify the possible risk (for me).
It depends on location. Where I live this would buy a normal semi-detached 3 bed house in a middle class area, not luxury. I agree that in other cantons this budget might be for luxury properties.
If the price was 1M the potential delay to FI date due to a price decline is smaller
Anecdotally I have observed prices for houses around here jumping ~15% or more post Covid, to be seen whether that will stick or if it reflects one off demand. But I dont think it is inconceivable they would go down and if it happens I don’t think SNB would classify that as a collapse, rather correction of a blip
The value of your loan may not be higher than 80% of the coverage. If you buy a house for 1’000’000, the bank will give you 800’000. If the interest rate goes up to 3%, not only does it raise the monthly interest paid on the loan, but it can have an impact on the valuation of your house, which serves as coverage for the bank. If the bank says your house is now worth 700’000 and your loan is still 800’000, you are missing 300’000 of coverage. Where will you get this money?
We did already this discussion. That’s probably the only thing that scares me.
I consider that I can take -30% (or even -40%) along the way in a span of 25-30 years a get (at least) the same price.
Space to build houses will be less and less, inflation will make the cost higher and so on.
You can rent a nice and big apartment, you can even rent a house (admittedly not that popular). But you can’t say that the living standard for a rental property has to be worse.
This is what we’re always trying to calculate. Like I’ve said, you can rent a great place, too. You don’t have to worry about maintenance, about the neighborhood becoming less prestigious etc. This also counts. When you own, you can be sure that nobody will kick you out, and your rent won’t go up. It’s a physical piece of land that belongs to you, which is nice.
But the point of our few last posts is that leveraged investments are risky. You will not buy a house with cash because even if you had this money, even you agree that it doesn’t make sense, right? It’s just so expensive, it’s crazy to pay in cash. But leveraged purchase with the help of mortgage? Yes please.
You will suffer a loss not only when you sell, because you’re on a margin. The bank will become very nervous if the value of your loan exceeds the value of your house. It means that if you would stop paying, they would lose money even if they took over your house and sold it at market price. They don’t want that. But they can do it. and then you lose the house, and you lose your deposit.
I agree, I was pointing out the worst case scenario (so to save more money), but of course there is always the solution in the middle.
Yes 
I won’t sell, unless I will be forced and I will see what happen during the way and take a decision
I know…probably it’s better if I stop think to that if I want to sleep during the night, but I put that same as I cannot think every day that potentially I can lose my job tomorrow, or I’ll have an accident…because everything is possible.
There is also some political risk because single family homes are currently subsidized forms of living. There is a risk that this becomes more known, resulting in pressure to reduce the subsidies by an introduction of a land tax or similar to cover infrastructure expenses that a plot of land requires.
This may reduce the value of that land considerably.
out of the 300k, 200k were already covered in the downpayment, so 100k need to be covered
Can you elaborate on this, please?
Indeed, if Switzerland’s population keeps growing (and projections say it will, thanks to immigration), especially the attractive locations will keep gaining in popularity.
I would say the following factors play a role:
Ironically, I think the current price levels mostly depend on last factor: cheap credit availability. The current generation has had fewer kids than before, they have saved a lot of capital and this capital has been lent to the younger generation at a very low rate. When this excess capital starts shrinking, that’s when you can see a problem developing.
I’m pretty sure that if there were no mortgage loans and you could only buy in cash, I would be able to afford a house already now. And then it would also be a sensible purchase.
You need to consider 80% of mortgage on the new value (700k), so it’s not just 100k
Somebody has been watching a lot of “Not Just Bikes” . I wonder how the American Suburbs stand in comparison to, say, Zürisee, where you have kilometers of lake shore with single-family houses and a low Steuerfuss. Is it really the case that these houses are somehow subsidized by the city of Zürich through the cantonal taxes? That would be weird, I would expect that all communal expenses (local roads, pipes, electricity, lamps, buses) should be financed from the Gemeinde tax?
Um, I’ll present my logic and please tell me where I’m wrong.
20 meters of canals/street or electric infrastructure costs roughly the same, no matter how many households you can serve with it. In a dense area, you need less infrastructure per household. However, the amount of infrastructure you use is not relevant for taxes. So households that need more infrastructure are subsidized by households that need less.
Single familiy homes are more likely to be car dependent, which is another heavily subsidized form of transportation. The cost of parking a car in a city is around 5 chf per hour, halve of which are external costs. Hardly anyone pays that much.
Here is a good video about some of the problems:
I think you probably only need to come up with 240k.
The bank is willing to give you a mortgage of 560k CHF on a home that is valued 700k. You have a loan of 800k, the difference is 240k.
Is this really the case in Switzerland? Do you have some numbers to back it up? Maybe this is true for USA, because of how suburbs are financed and built. But in Switzerland, aren’t all the local costs covered locally on the Gemeinde level? I get that people zooming on a highway everyday from Pfäffikon to Zürich use the state-level infrastructure, but then you should just increase the cost of using the highway. Show me some proof that a Zürich City resident pays for the streets and pipes for a single-family house in Kilchberg.