Swiss Bank Curbs Optimism On Mortgage Interest Rates

The low mortgage interest rates may encourage the homeowners to go for costly refinancing options, said Thomas Jordan, who is the third person in the Swiss National Bank, in a speech entitled "The low curse of blessing." He delivered his speech on the cautions of the low mortgage in interest rates yesterday before the Assembly of Delegates of the Swiss Society of landowners. "Owners, who are too optimistic in their calculations, in the future likely to encounter difficulties," warned Mr. Jordan. At the same time, banks could also be aggressive in their policy of granting mortgage loans to gain market share, an attitude that rejects the National Bank.

"The exact analysis of the risks of credit and maximum respect toward new mortgages should be the main centers for giving credit, and should not be sacrificed on the altar of short-term gain of market share", called the future vice-president of the Swiss National Bank.

Thomas Jordan also pointed out that the owners must take in the consideration the future rise of the current mortgage rates. The level of debt caused by the purchase of a house must also be defined.

He also said that the Swill National Bank has released many liquidity banknotes in the market, which was an expansive policy. Jordan also warned against "over-investment." According to him, experience shows that prolonged phase of low interest rates accelerates construction industry in a dramatically fast way. Sometimes the conststruction goes to wrong places. The result is an abundance of empty buildings. This situation has been observed in Switzerland in the 1990s and led to the fall in property prices. As you can see mortgage interest rates can cause a lot of long term damages if not managed conservatively.

Unlike many countries, Switzerland still has a robust real estate sector, said Thomas Jordan. The current low interest rates have already caused a drop in mortgage rates for homeowners. Tenants should also benefit in the medium term. This low level of current mortgage rates should ease the family budget and encourage investment and consumption. These are factors that could contribute to the stabilization of demand in the current recession.

Source: Romandie News