The Swiss banking sector has announced that a new reform with stricter rules will come into force in 2025. This is the Basel III reform, introduced by the Basel Committee.
The aim is to strengthen the stability of banks and the financial system by modifying access to mortgage loans and the management of property assets.
These measures will have a knock-on effect on Swiss property owners, buyers and professionals.
This article discusses a major reform with significant requirements for the players mentioned above in terms of capital, interest rates and risk management.
The new Basel III standards are aimed at strengthening financial resilience, as this regulatory regime is ambitious, but what about the repercussions on the Swiss property market ?
Although this reform heralds prudence and stability, it does raise questions about mortgage financing conditions and access to property.
This is exactly what we’ll be looking at when we discuss future changes and their impact on market players.
Basel III – A necessary reform?
The lessons of the 2008 financial crisis have led to high standards of capital and risk management so that banks can absorb financial losses and better manage lending activities.
Swiss establishments are aware of this, which means :
- a minimum solvency ratio raised to 10.5%.
- a higher leverage ratio.
- short- and long-term liquidity ratios.
Mortgage financing requirements have been reviewed by FINMA, including differentiated risk weightings for rental and residential properties.
Banks will therefore adopt specific approaches for each type of risk following adjustments to theswiss ordinance on equity capital (OFR).
SwissBanking also states that, following the restrictions established in 2019 for investment properties, the revised guidelines for loans secured by real estate pledges will introduce uniform requirements.
Nevertheless, these changes could increase the cost of credit for residential investment properties.
Basel III also includes the strengthening of credit risk management, so as to enhance prudence and increase capital reserves in the event of potential losses.
Basel III will therefore come into force on 1 January 2025..
Le secteur immobilier en ligne de mire
The mortgage loanswill be more expensive as a result of higher capital requirements. Banks will therefore be more cautious about granting mortgages with a high collateral ratio..
As a result, borrowers will have to increasing their down payment and mortgage interest rates could rise to compensate for the banks’ additional costs.
As a result, the cost of mortgages could rise for homeowners, especially those whose collateral costs more than 60%.
What’s more, the options for renegotiating or refinancing loans are likely to dwindle. Banks could reduce their advantageous terms, giving borrowers less flexibility and generating a higher overall cost of property financing.
How can property owners and investors minimise these impacts?
Here are some strategies you can apply to reduce the impact of the Basel III reform:
- Reduce the rate of collateral : Increase your initial contribution to benefit from more favourable loan conditions.
- Choose a fixed rate: Protect yourself against potential rises in interest rates by opting for fixed-rate mortgages.
- Improve your credit file: consolidate your assets and prepare a solid financial plan.
- Consult an adviser specialising in property and financial investment.
However, even if this reform seems restrictive, it does lead to property assets being managed in a more prudent and sustainable way.
Moreover, seasoned property investors see the Basel III reform as an opportunity to make strategic acquisitions in less competitive markets such as property crowdfunding.
Against this backdrop of regulatory changes, property crowdfunding is emerging as a particularly attractive solution. At SIPA Crowd Immo, we offer a flexible and turnkey approach that makes it possible to invest in income-generating properties while circumventing the constraints of the new mortgage requirements.
Our participative shareholding model makes investment accessible and simple, by managing all the administrative, legal and rental aspects for you. It’s an ideal opportunity to diversify your investments while securing your returns in a fast-changing market.
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