UBS: Bubble Index remains in the risk zone

The "Bubble Index" compiled by UBS Swiss Real Estate has now been moving in the range of 1.30 to 1.45 index points for one and a half years. In the fourth quarter of 2016, it stood at 1.35 index points and was thus in the risk zone. Compared with the slightly revised value of the previous quarter, the index increased only minimally.

The "price-to-income" and "price-to-rent" sub-indicators increased slightly. By contrast, the slower growth in mortgage debt had a dampening effect.

Interest rate risks rise

The imbalances in the owner-occupied housing market have thus stabilized, but have not decreased, the UBS researchers conclude. Thus, the dependence of home prices on low interest rates has increased further in recent quarters.

The buy-to-rent ratio increased for the ninth quarter in a row, partly because the running costs of an owner-occupied home have been lower on average in Switzerland than the rental costs of a comparable property since mid-2014. But even a 1 percentage point increase in mortgage rates would cause the costs of an owner-occupied home to exceed those of a comparable rental property again, which could trigger a price correction in the owner-occupied home market, according to UBS economists.

Debt driven only by new construction

By contrast, the volume of outstanding household mortgages increased by only 2.6 percent year-on-year. According to UBS, this is the lowest figure since December 1999. However, mortgage volumes continue to rise faster than the disposable income of households in Switzerland.

In general, the growth in mortgage volume is determined by new housing construction, new lending on existing housing stock and the level of amortization payments. However, the CHF 18 billion increase in household debt in 2016 is likely to be entirely due to new housing leasing, according to the UBS economists' calculation. This means that more was probably amortized last year than additional mortgages were placed on the housing stock.

Geneva, Nyon and Morges with price corrections

The number of hazard region remained unchanged in the fourth quarter of 2016. The regions of Geneva, Nyon and Morges are in a correction phase. In these regions, the local owner-occupied housing markets have already cooled.

Price corrections in Valais, the Bernese Oberland and parts of Graubünden over the past three years have meant that no tourism region is now on the hazard map. The focus of regional risks is gradually shifting from Lake Geneva to the regions of Zurich and Central Switzerland, according to UBS experts.