The Basel reforms: a reminder

Basel III is the latest in a series of international banking regulations designed to make banks safer in the face of financial crises. The Basel reforms, initiated in 1988 with "Basel I" to harmonise bank capital requirements, evolved with "Basel II" (implemented in 2008) by integrating market and credit risks, then "Basel III" (implemented in 2013) by strengthening banks' resilience to financial crises through increased capital, liquidity and leverage requirements. It became clear that banks needed to strengthen their financial reserves to better manage periods of economic turbulence, and to do so in proportion to the risks incurred. With the latest updates from 2025, the new Capital Adequacy Ordinance comes into force, which transposes the final Basel III standards into Swiss law. Banks will be obliged to hold even more capital for every loan granted. As a result, they will have to raise more capital for each transaction, pushing them to increase their interest margins to maintain equivalent profitability. This will translate into higher mortgage interest rates for customers.

Consequences

For future property owners

If you're thinking of buying a property in Switzerland, here's how the new Basel reform could influence your steps.

Stricter lending criteria
Banks will be more cautious in granting mortgages and will limit exceptions to their lending policies, which could mean higher personal contribution requirements and a more rigorous assessment of your creditworthiness. It is therefore important to ensure that you have optimised the presentation of your economic situation to maximise your chances of obtaining a loan.

Higher interest rates
The new rules will result in slightly higher interest rates on mortgages, which would increase the total cost of borrowing. This makes choosing the right time to buy and negotiating the best possible terms all the more crucial. After a sharp fall in interest rates over the past year, this increase in rates could be anecdotal.

Less flexibility in lending terms
The banks will offer less flexibility in lending terms, i.e. they will be more watchful about the profitability linked to credit services. This applies both directly to the credit margin and indirectly to other services that the mortgagor may have with the financial institution. Banks are likely to limit options such as (1) variable rate (SARON) loans with no minimum term, and (2) commercial gestures regarding prepayment penalties. They will also be much more vigilant in limiting lending to their loyal savings and/or wealth management customers. Be prepared for tighter conditions, and plan your purchase accordingly.

For existing homeowners

If you already own a property, Basel III will also affect your mortgage financing.

Revaluation of mortgages
If you have a variable-rate mortgage or are considering refinancing your loan, you could be affected by a rise in interest rates or a unilateral decision by the bank. Faced with stricter capital requirements, banks could adjust interest rates at the end of the term or, in the worst-case scenario, demand repayment of the mortgage. This could increase your monthly payments or put you in a delicate situation, and it might be prudent to re-evaluate your finances to make sure you can cope with these possible increases.

Reductions in refinancing options
Refinancing options could become more limited and expensive as a result of the new banking requirements. If you were thinking of refinancing your mortgage to take advantage of a lower interest rate or to adjust the repayment term, it would be wise to do so before the new rules take effect, or to consult a financial advisor to evaluate your options.

Advice

People classified as prime risk (i.e. borrowers obtaining finance for their own-use residence where the loan amount does not exceed 60% of the bank value of the property financed) still get better terms, but mortgages will not be cheaper despite a low borrowing level. Banks are seeking to restore their margins by raising interest rates, especially for those with high borrowing levels, which may result in a risk premium or refusal of financing.

For future buyers

Focus on security
A fixed rate is a contract that cannot be revised before maturity. So opt for a long-term fixed rate and avoid mixing up your maturities. If you wish to opt for a variable-rate portion (SARON), try only a small part, with an amount you could pay back in a few weeks in the event of sharp rate rises. Beware of taxes: reducing your debt can have unfortunate tax consequences.

Improve your credit file
Make sure you offer your lender all conceivable equity tracks (BVG/LPP, 3rd pillar 3A and 3B, etc.), which will increase your chances of getting a mortgage on the best terms.

Consult a financial advisor
Before committing to a property purchase, enlist the help of an advisor, such as a Resolve mortgage expert, to help you navigate the new banking requirements and find the best financing solution.

For existing homeowners

Reducing debt levels
Check whether you can improve your debt levels, possibly through pledges (BVG/LPP, 3rd pillar 3A and 3B, etc.) or efficiently structured amortisations. In such scenarios, pay attention to the tax implications and validate your decisions with an expert.

Anticipate interest rate fluctuations
If you have a variable-rate loan, consider switching to a fixed rate before 2025 to avoid a potential increase in monthly payments.

It's your turn

The new Basel III guidelines, due from January 1, 2025, bring significant changes that will affect homeowners. As a buyer, you'll need to prepare for stricter lending criteria and potentially higher costs. For current homeowners, it's essential to keep an eye on interest rates while exploring refinancing options before the new rules take effect. By staying informed, enlisting the help of a mortgage expert and taking proactive steps, you can navigate this new financial landscape with confidence.