Swiss housing bubble risk faded in second quarter - UBS index

Mon Aug 5, 2013 3:11am EDT

Related Topics

* Real estate index only rose slightly in Q2

* SNB has warned of overheating housing market

* SNB imposed capital rules on mortgage lenders

ZURICH, Aug 5 (Reuters) - The risk of a Swiss housing bubble faded in the second quarter, but mortgage lending rose and real estate remains overpriced, according to an index released on Monday.

The spectre of a real estate bubble bursting in Switzerland is a prominent worry for the Swiss National Bank, which cannot easily resort to an interest rate hike to rein in lending because that would clash with its efforts to restrain the value of the Swiss franc.

Instead, the Swiss government has imposed additional capital rules on mortgage lenders in an effort to dampen a housing market boom fuelled by ultra-low interest rates, immigration and Switzerland's appeal as a haven for financial investors.

An index of Swiss real estate rose by 0.03 point in the second quarter, a much slower rise than in the first quarter, confirming a gradual cooling of the housing market, according to Swiss bank UBS, which compiles the quarterly reading.

"In the absence of a sustained cool-down, however, the risk of a price bubble is likely to increase again in the coming quarters," UBS economists Claudio Saputelli and Matthias Holzhey said in a statement.

"This is because the market is at the peak of a price cycle that has lasted 15 years now, and overall is showing clear signs of overvaluation."

Home prices climbed 5.4 percent in the second quarter, and mortgage volume rose by 29 billion Swiss francs ($31.25 billion), or 4.3 percent. This was set against a mere 1.4 percent rise in household income, UBS said.

"The increase in total debt is accompanied by a rise in the risks for the economy in the event of a sharp rise in interest rates," Saputelli and Holzhey said.

Last month, ratings agency Moody's downgraded the long-term debt rating of Swiss-based Raiffeisen, warning that its rising share of mortgage lending makes the retail cooperative bank susceptible to shocks if Switzerland's housing bubble bursts.

The SNB, which warned on the Swiss housing market as recently as June, is weighing whether to ask the government to increase the capital rules on mortgage lenders, Neue Zuercher Zeitung am Sonntag reported on Sunday, citing unnamed sources.

A spokesman for the SNB declined to comment.

The SNB kept Swiss interest rates near to zero at its most recent policy meeting in June, and said it was too early to consider an exit from loose monetary policy. ($1 = 0.9281 Swiss francs) (Reporting By Katharina Bart; editing by Tom Pfeiffer)

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