Swiss Real Estate Bubble Index 2Q 2016 continues falling, Still in Risk Zone

The uncertainty surrounding the Brexit decision recently increased pressure on mortgage rates again. A long-term mortgage now costs about 30% less than three years ago. Despite the attractive financing, however, the price momentum on the market is declining, since stagnating household incomes dampen the growth of home prices. This is compounded by the fact that, since the introduction of self-regulation, banks have been keeping strictly to the economic viability rules for mortgage lending. As a consequence, at the current price level combined with stagnating incomes, fewer and fewer households are meeting the requirements for a mortgage loan.

The UBS Swiss Real Estate Bubble Index nudged down in 2Q 2016 to 1.32 points and thus remains in the risk zone. This second drop in a row was due to house prices falling in real terms and the declining momentum of mortgage growth. Investments in real estate remain popular due to low interest rates. - Click to enlarge

Methodology
Depending on its current value, the index falls into one of the following risk categories: slump, balance, boom, risk and bubble. These categories are specifically defined and ranked in order of risk. The UBS Swiss Real Estate Bubble Index comprises six sub-indices that track: the relationship between purchase and rental prices, the relationship between house prices and household income, the development of house prices relative to inflation, the relationship between mortgage debt and income, the relationship between construction and gross domestic product (GDP), and the ratio of loan applications filed for intended rental properties to total loan applications filed by UBS private clients.