* UBS bubble index goes further into risk zone despite new rules
* Low interest rates have helped property market boom
* SNB can introduce capital buffer for banks to prevent bubble
ZURICH, Feb 4 Switzerland's housing market is showing signs of overheating, research showed on Monday, fuelling a debate on whether its central bank should impose a capital buffer on lenders to cool mortgage activity.
The UBS real estate bubble index jumped 0.9 points to 1.11 points in the fourth quarter, pushing further into the risk zone that starts at 1.0 and which it entered in the previous quarter for the first time since Switzerland suffered a housing market collapse two decades ago.
"The rise of 0.09 points reflects a further rise in the unhealthy dependency on low interest rates," UBS economists said in a statement, adding if the trend continues the index looks set to enter the "bubble zone", which begins at 2.00, by the end of 2014.
The UBS economists said a recent recovery in financial markets and the lessening appeal of safe havens like Switzerland could slow down the sharp rise in real estate prices in the current quarter.
"The majority of the demand, however, is domestic, which means that without a significant increase in long-term interest rates, the trend is unlikely to be reversed," they said.
Swiss real estate prices and home mortgage loans have grown 20 percent in the past four years.
While the bubble has built, the Swiss National Bank has been forced to keep interest rates at rock bottom to hold down the franc, which had soared as investors sought a safe haven from the euro zone crisis.
The central bank can recommend that the government impose a counter-cyclical capital buffer of up to 2.5 percent of the risk-weighted assets in a bank's mortgage portfolio.
But it has said it wants to give tougher mortgage-lending standards imposed by Swiss regulator FINMA last year more time first.
The bulk of Swiss home mortgages are held by the country's smaller banks, rather than UBS and Credit Suisse , which are already subject to strict capital rules imposed after the financial crisis.
At about 40 percent, Swiss home ownership is comparatively low, less than in France or Britain. A high number of skilled workers moving to Switzerland has helped support the market. (Reporting by Emma Thomasson; Editing by John Stonestreet)