Banks will have to comply with new rules for mortgages from 2025
Mortgages: banks will have to comply with new rules from 2025
The “Basel lll” reform package will change the rules for lending. Banks will have to provide more capital for certain mortgages. Some homeowners will also feel the consequences.
The Federal Council and FINMA have made a decision as part of “Basel III”: From January 1, 2025, banks will have to comply with new rules when granting mortgages. Depending on the loan-to-value ratio of a mortgage, they will have to provide more or less equity. The loan-to-value ratio refers to the amount of the mortgage in relation to the value of the property.
This also has consequences for some homeowners. Their mortgage could become more expensive in the future. It is therefore worth finding out in good time.
Consequences for homeowners
Today, if you are classified as a first-class risk by the bank, you generally pay less. This will not change. But it doesn’t get any cheaper either – even with a low loan-to-value ratio. This is because the banks are faced with higher refinancing costs and they want to normalize their margins back to the level before the negative interest rates. On the other hand, anyone who is not classified as a first-class risk because their loan-to-value ratio is high now pays a risk premium – and this will increase depending on the loan-to-value ratio. Because the bank has to deposit more equity, it will demand a higher interest rate or refuse the financing.
What’s more, in future, not all additional collateral such as life insurance will be taken into account when calculating equity. This often leads to a higher loan-to-value ratio.
Tip: Check whether you can improve the loan-to-value ratio of your mortgage. Talk to your bank if, for example, you have inherited money or made value-enhancing investments – and your home is therefore worth more today.
Consequences for owners of apartment buildings
It is likely to be more expensive for buyers and owners of multi-family homes in particular. The financing of investment properties is already stricter today because vacancy and cluster risks as well as possible losses in value due to higher mortgage interest rates are added.
This is why most banks finance a maximum of 75 percent of the purchase price. This 75 percent limit will fall with “Basel III”. However, the banks must also deposit significantly more equity if the loan-to-value ratio is above 60 percent. In such a case, their costs rise sharply – they will pass this on to their customers and charge a higher mortgage rate.
Tip: Compare income, costs and risks carefully if you are thinking about buying an apartment building or developing a property. Investment properties are particularly suitable as a source of income for investors with sufficient reserves that can be easily liquefied to cover unexpected capital requirements.
