Very low mortgage rates, selling prices very high, what are the risks for homeowners?

If the prices of villas and apartments and falling mortgage rates rise adjusted parallel , a number of owners could find themselves in a difficult financial situation . The currently applied mortgage rates are historically low and selling prices of villas and apartments in Geneva are very high.

According to a study by the Swiss National Bank , 40% of new owners have financial difficulties if mortgage rates rose 5%. Some financial institutions circumvent the rule 20% of own funds and annuities not more than 1/3 of income. The annuity has loads of interviews , mortgage interest and depreciation. So the golden rule seems to be applied by all banks and insurers if you believe the newspapers .

As we saw in the late 80s , if prices fall , mortgage donors reassess values ​​guarantee their customers . I remember the last real estate crisis several promoters were in such a situation and went bankrupt and had to sell their own home.

Scenario on the existing funding if prices fall:

Example scenario : The customer purchased the house Fr 1,500,000 and was financed with 20 % equity corresponding to CHF 300,000 and a mortgage of CHF 1'200'000 . It has depreciated 2% per year, corresponding to CHF 120,000 in a period of 5 years. Debt remains at CHF 1,080,000 . This funding is quite common . So , five years after the purchase, prices fell and the bank now estimates the villa Fr 1,200,000 and apply the new rule that the debt should not exceed 80% of the value of guarantee , so 960,000 . So she touch his client asking him to refund the difference between CHF 1,080,000 and CHF 960,000 , that is to say 120,000 Fr . If the owner does not have the amount in reserve , it will be forced to sell his house or find another solution. And because there will be other owners in the same situation , there will be more and more villas for sale on the market and if there is no more demand, prices will continue to decline .

Problematic if mortgage rates rise:

Annuities should not exceed one third of income. To simplify our example, we calculate with a mortgage interest rate of 2 % in the first row on funding of CHF 975,000 and 2.5% in the second row of the remaining 105,000 ( 1,080,000 Fr -Fr . 975,000 ) . The annuity thus amounts to CHF 19,500 (1st row ) + CHF 2'625 ( 2nd row ) + CHF 15,000 ( charges 1 % of the purchase price ) plus CHF 24'000 amortization = CHF 61'125 . The owner in this example has an annual income of 200,000 francs , thus more than three times the annuity and it is therefore not a problem ( or to the bank or to the owner).

Now calculate with a mortgage rate of 4.5 % in the 1st and 5 % in the second row. The annuity amounts to CHF 43'875 maintant (inside 1st row ) + CHF 5'250 (int. 2nd row ) + CHF 15,000 (expense) 24,000 + Fr = Fr amortisement 88'125 , so an increase of 44.17 %. It should earn 264'375 CHF per year.

I recall that in the past, mortgage rates were up 7% or even more so these calculations are not completely utopian . The currently prevailing mortgage rates are also historically low .

Faszit : If prices fall and mortgage rates rise adjusted parallel , a number of owners could be in trouble. To avoid this, it would be wise to absorb more during the period of low rates and - if possible - to save to create a reserve fund .