Mortgage market – recognising opportunities, exploiting diversity

Residential property in Switzerland is in demand and will remain so, as demonstrated by the steadily rising prices. While property purchases used to be financed almost exclusively by banks, the mortgage market has become more diverse in recent years: insurance companies, pension funds and alternative providers all offer financing options – including Swiss Life.

According to a mortgage market study by Moneypark, insurance companies have around 3% of the market share, while pension funds have a similarly strong presence. Banks still issue by far the most mortgages. Borrowers and institutional investors are the main beneficiaries of the expanded product offering. Increased competition from insurers and alternative providers is leading to a broader range of products and more attractive conditions.

Swiss Life recognised at an early stage that mortgages are the ideal product to combine with life insurance and has been offering attractive mortgage products for over 150 years. Unlike banks, which primarily focus on the interest margin business, insurance companies view mortgages as an independent asset class in itself, comparable to CHF bonds, but with a higher return of over one percent. Swiss mortgages are also a very low-risk asset class.

Mortgages with very long terms meet many customers’ need for security. Anyone who prefers such long-term mortgages is in good hands with Swiss Life. While banks usually have a limit of a ten-year term, Swiss Life grants mortgages with terms of up to 25 years. The long-term nature of these investments aligns perfectly with the liabilities of life insurance companies and pension funds, which are themselves faced with long-term liabilities and want to keep their asset-liability gaps as small as possible. Banks, on the other hand, have to have more equity capital for longer-term mortgages. By contrast, insurance companies are less interested in short-term mortgages. Swiss Life therefore only offers Saron products as an addition.

You may incur high costs if you terminate your mortgage early, for example as a result of death or divorce. With Option Flex, Swiss Life offers an innovative solution: this additional option allows you to terminate the mortgage free of charge if you sell the property early. This mitigates a key risk faced by borrowers and increases planning security.

Institutional investors have also discovered the mortgage market. Many digital platforms now allow mortgages to be granted directly and indirect investments to be made via funds and investment foundations. More than ten such products are currently available in Switzerland.

Mortgages are an attractive option for generating returns, especially in times when the key interest rate is zero, as is currently the case, and negative interest rates cannot be ruled out. This is also the case when compared to government bonds, which become less attractive during periods of low interest rates. Mortgages offer more stable and often significantly higher returns in such an interest rate environment – typically 80 to 100 basis points more, with a comparable credit rating and term.

Thanks to the mortgage coverage and the stability of the Swiss real estate market, mortgages are also considered to be particularly low-risk. They can therefore be a valuable addition to institutional investors’ asset allocation: they protect against negative interest rates, increase diversification and contribute to the stability of the overall portfolio.

Swiss Life has launched two products: an investment group tailored to the needs of employee benefits institutions and a mortgage fund aimed at qualified investors. The investment solutions invest exclusively in secured mortgages with sustainability certificates. Upon being completed, each property has been awarded a “Minergie” label, a “Cantonal energy certificate for buildings” (CECB) or a similar certificate. With a current duration of around seven years, the products stand out significantly from the other products in the market. Once again, the benefits of Swiss Life’s insurance experience are evident: long liabilities make long-term assets more attractive.

The Swiss mortgage market has become more diverse and dynamic in recent years. Swiss Life offers new perspectives and products that offer advantages to both borrowers and investors. The mortgages offer an impressive combination of long-term planning security, attractive conditions and sustainable investment options.