Sergio Ermotti was recently asked at a lecture why he suddenly had to pay so much more for his mortgage since the takeover of Credit Suisse (CS). After a brief pause, the UBS-CEO responded, «You probably paid too little at CS.»

«This is a Completely Normal Process»

The questioner was hardly satisfied with the answer, but it highlights the dilemma facing the merged banking giant. UBS has taken over a significant number of mortgages from its former competitor and now has to adjust costs substantially. This is due to CS's previous aggressive pricing, the shift in interest rates, and inflation generally driving up prices. Additionally, Basel III regulations require higher capital reserves in the real estate market and the activation of the counter-cyclical capital buffer.

Banks do not make friends in such situations. However, according to Romain Dequesne, CEO of leading mortgage broker Resolve, UBS had no other choice: «This is a completely normal process. Which bank can afford to have too many risks on its books?», he says.

Market Affected by Shock

With the integration of CS, UBS has become a major player in the market. It now accounts for about 3 percent of the Swiss real estate market and is among the largest providers in the mortgage sector.

When such a large player becomes more cautious, it has repercussions. «The CS integration has brought a lot of changes to the market. This has at times led to a state of shock,» says Dequesne.

Noticeably Few Building Permits

«We observe that UBS is currently significantly more cautious compared to Credit Suisse,» confirms Bank WIR, adding, «In large projects, there is a lack of competition, and with retail clients, we hear that UBS is demanding significantly higher margins for the renewal of Saron mortgages.»

As a result, other players, including cantonal banks, regional banks, digital banks, as well as pension funds and insurance companies, have also applied the brakes.

The consequence: This has led to a marked decrease in construction. «The annual total of building permits in 2023 was around 32,700 housing units, roughly a third below the long-term average», concludes UBS in a report. 

Easing Expected in Q4

This trend has continued throughout the year, leading to decreased vacancies and a sharp rise in rental prices.

However, a relaxation is now on the horizon. «Unlike insurance companies and pension funds, banks are regaining confidence. We expect easing in the fourth quarter,» says Resolve-CEO Romain Dequesne. Yet, the improvement will not be widespread. Here are the implications:

• While the rental housing market remains generally tight, the situation varies for commercial real estate. «In the office market, a differentiated development is still expected, depending on regional conditions and employment trends,» writes CSL Immobilien, a subsidiary of Migros Bank. «It is increasingly evident that location matters, and not everything is being bought up indiscriminately», summarizes Bank WIR.

• The situation remains challenging for construction development. «The business is shifting from institutional providers to the private market», says Dequesne. For hotel or commercial projects, private investors have become almost indispensable, as these projects have become too risky for banks. «However, there are solutions, and banks are open to them if the relationship with the client extends beyond just the mortgage.»

• Challenges also persist concerning affordability in retirement for personal use. «Many older individuals are struggling to meet mortgage requirements due to increased demands», notes Dequesne. This issue is expected to intensify. «We already receive two to three inquiries monthly on this matter, with the trend rising», he adds. This is particularly significant in the Zurich area, where many buildings are still owned by the older generation.