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Comment by patatino | Hacker News Reader

Well, I can't talk about Geneva or Zurich because both cities are very expensive. But generally, prices are going up, the down payment is normally 20% of the price. This is one problem, another one is how they calculate the risk. The "law" is you have to be able to pay the mortgage at 5% and that 5% cannot be more than 1/3 of your income.

So if you buy a 1.25m house and take a 1m mortgage 5% is of that is 50k, so your salary has to be 150k.

Point 3) is wrong, they make still a lot of money with loans, a lot of people still take 10 year loans for somewhere between 0.6% and 1%.

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But generally, prices are going up

This can be resolved any time cities want to build a lot more housing: https://www.theatlantic.com/ideas/archive/2021/01/anti-growt.... Outside of Tokyo: https://news.ycombinator.com/item?id=16704501, no or very few cities in the Industrialized world have chosen to simply build lots of housing, which will tend to bring prices down towards the cost of construction.

Sadly, it's not always that easy. A large amount of swiss property is owned by pension funds, which are legally limited in their possible investments. So increasing the supply of housing will also defund the pension funds.

Geneva is surrounded by mountains and a lake, it's hard to build more.

Similarly for Zurich, there are significant hills around and most flat space is already built up.

I think it's not just that but the fact that the country is literally packed. It's about 2/3 of my country's size,yet has 3 times more people. Haven't been to Switzerland but I can imagine most parks and other public spaces must feel quite full with people.

Switzerland is only the 13th most dense country in Europe. Notably, the UK and Germany are more dense.

You can easily double it, because neither Germany nor UK have mountains covering half of the country.

Zoning is also an issue.

Its not really helping places like Austin TX. All that happens is the developers move a couple miles further outside of town build a bunch of houses, usually for what works out to be roughly equal to the cheapest house in town. Repeat the process next year. Within a few years everything doubles. So the housing market is inversly priced by distance from downtown and the lakes. Sure you can get a house for $250k, but your likely looking at sitting in your car for 3 hours a day. If you can handle a million $'s you can probably live 10-15 mins away from your work. If you have a few million you might even get a nice place.

Alas, that won't work in Denmark. Any politician threatening to do something that would result in housing prices going down would be voted out of office by angry homeowners and Copenhagian landlords.

So maybe the problem is a broken political system which serves the interests of only one group of people, rather than high or low interest rates?

Well, there's always that, but I've always figured it's about taxes and government spending. There's a very large amount of over-valued houses in and around the larger cities in Denmark. If the property value goes down, so does the property taxes, which means less income for the local authorities.

There are cheap houses available outside those areas, but getting a loan for them can be tricky since their value is too low and there's no money to be had from lending the money.

Furthermore, most people have their homes as security (not sure if it's the right word in English) for their loans. If the property value drops then many will be forced out of their homes. Also a lot of landlords and real-estate agents, will be out of a job, but that's probably a smaller issue.

From what I've seen, prices have been static and have even started to fall in some areas. There are a lot of people staring down a refinance on a 5 or 10 year interest-only loan in the middle of a recession.

I haven't looked it up, but from what I've been told a lot of it also has to do with investment laws for Pillar 2 and 3 retirement accounts (a certain percentage has to go into Swiss assets). Taking 1-1.5% over LIBOR/SARON or whatever the SNB rate is makes sense, but the fall-out in a couple of years if and when rates start to move up again isn't going to be pretty.

1/3 of your income OK, but why 5%? Are these variable rate mortgages?!

Fixed interest mortgages in Switzerland are usually only up to 10 years. The 5% underwriting limit is used to minimize the interest risk.

5% is more or less the long term average mortgage rate.

Owners generally keep a mortgage on their property (~65% of the property value) to off-set wealth and property taxes. Residences are taxed by their estimated rental values, which is treated as income. Interest payments are tax deductible, while the principal on the mortgage lowers the amount owned for wealth taxes.

The other issue is that most primary mortgages don't allow for early repayment, meaning that the principal either has to be payed off in full or refinanced once the payment period is over. Owners become conditioned to continuously roll over the principal on their primary mortgage.

To answer your question, because the expectation is that residential property will be mortgaged through out the entire ownership period, banks have to make sure that someone who can afford the payment on a 1% mortgage can also afford the payment on a mortgage refinance if and when rates eventually go up.

Canada does something similar. To avoid buyers “biting off more than they can chew” with an ultra-low variable rate mortgage (where the rate might double or triple in 5 years), buyers have to qualify for a LIBOR+5% (I don’t remember the exact formula) mortgage as well.

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