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Credit risk assessment in Swiss real estate financing – away from monoculture

Published by Michael Rose, 08.08.2023

Due to the low number of documented loan defaults, the risk measurement instruments used by lenders are very rudimentary. For further development, tools and methodologies developed abroad must be taken into consideration. The creation of high-quality tools is only possible if the regulator frees the mortgage market from its shackles and allows a market-based solution and a plurality of methods.

The Swiss mortgage market is the most important credit market in Switzerland and of enormous importance for domestic banks. The balance sheet position "mortgages" accounts for 70% - 85% of the assets of the typical retail bank.

Today, the regulator only focuses on the less useful factors of "affordability" and "loan-to-value ratio".

Accordingly, the risk measurement of this position is central both to the financial health of the individual bank and to financial market stability. Switzerland has experienced very few mortgage defaults in the last 20 years.

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