Swiss Covered Bonds: Why Capital Market Refinancing Is Becoming More Important

Published on: August 19, 2025 | Reading time:15 minutes

Key Messages

The Swiss mortgage market is growing structurally, even though the homeownership rate remains low, visibly driving up private debt. At the same time, customer deposits cover a declining share of lending, which is why capital market-based refinancing via covered bonds (“Pfandbriefe”) is gaining importance. The current pressure on deposit-based refinancing arises from several sources: the reduction of the Swiss National Bank’s foreign currency reserves, which withdraws CHF liquidity; the expansion of mortgage volumes due to rising property prices; tighter liquidity requirements, especially for systemically important banks; and higher minimum reserve requirements. Acting as a stable interface between real estate financing and the capital market are the Pfandbriefbank schweizerischer Hypothekarinstitute and the Pfandbriefzentrale der schweizerischen Kantonalbanken, which issue covered bonds under strict legal provisions and pass on funds against mortgage collateral. The 2% capital requirement of the Pfandbriefbank further strengthens system stability. Persistent demand from banks, insurers, and pension funds ensures market depth and predictability, making covered bonds a central instrument to reliably connect refinancing, regulation, and investor protection in Switzerland.

 

1. Introduction

The Swiss mortgage market is in a phase of structural growth, driven by sustainable demographic and economic forces. While the homeownership rate remains low by international standards, debt-financed housing continues to increase, shaping banks’ balance sheets and the overall indebtedness of private households. This dynamic coincides with a situation where customer deposits grow less strongly than lending, and monetary as well as regulatory policy decisions influence the available CHF liquidity. The result is a widening gap between loan volumes and the deposit base, which banks increasingly close via the capital market. Covered bonds take center stage here because they offer a legally secured, predictable, and deeply rooted form of long-term refinancing in Switzerland.

This article answers key questions about the current Swiss mortgage market: why mortgage volumes are rising despite the low homeownership rate, why the deposit base is no longer sufficient, and why capital market refinancing through covered bonds is gaining importance. It also explains how the Pfandbriefbank and Pfandbriefzentrale work and what security mechanisms apply. Furthermore, it outlines the causes of refinancing pressure, highlights the demand from banks, insurers, and pension funds, and discusses the effects on conditions.

2. Real Estate Financing and Debt in Switzerland

Recent years have shown that rising property prices and ongoing housing demand have significantly expanded mortgage portfolios. Remarkably, this expansion occurs in a market with a comparatively low homeownership rate. A substantial share of housing remains rented, yet an increasing portion of national savings flows into residential property financing through bank balance sheets. This shifts the structure of private debt toward mortgage-backed loans. For banks, this means a growing need for stable, long-term refinancing that keeps interest rate and liquidity risks manageable while reliably meeting regulatory ratios. These unique features of the Swiss market create a lasting demand for high-quality CHF investment and refinancing instruments.

3. Declining Deposit Refinancing and Growing Capital Market Role

Traditionally, customer deposits are the cheapest source of funding for banks. In an environment of structural credit growth and fluctuating monetary liquidity, however, they no longer cover the entire mortgage volume. As a result, covered bonds and other capital market-based instruments are gaining importance, as they extend maturities, reduce dependence on deposit behavior, and reliably support regulatory liquidity requirements. For treasury departments, covered bonds create a predictable refinancing base with deep market access, adjustable to the yield curve, smoothing financing costs over the cycle. At the same time, their legal structure provides robust investor protection, which usually keeps spreads tight and ensures refinancing remains possible even during periods of heightened uncertainty.

4. Causes of Current Refinancing Problems

Recent bottlenecks in deposit refinancing cannot be attributed to a single factor. The reduction of foreign exchange reserves by the Swiss National Bank in recent years has systematically absorbed CHF liquidity, weakening the deposit base relative to credit demand. At the same time, rising property prices have further expanded mortgage volumes and refinancing needs. In addition, stricter liquidity requirements—especially for systemically important banks—demand larger and higher-quality buffers, while the increase in minimum reserve requirements ties up additional funds. Taken together, this creates structural pressure that must be cushioned through capital market funding. Covered bonds are the key instrument here because the Swiss framework relies on a specialized, legally protected issuance system that functions reliably even in demanding market phases. The causes of the current refinancing problems can be summarized as follows:

• Reduction of SNB foreign reserves: Over the past three years, the Swiss National Bank has sold large volumes of reserves to combat inflation, draining CHF liquidity while credit growth continues.
• Rising property prices: Continuous price increases for residential and commercial properties drive up financing volumes.
• Stricter liquidity requirements: Especially systemically important banks face tougher liquidity requirements.
• Higher minimum reserves: All banks must hold more funds with the SNB, further limiting flexibility.

5. The Role of the Pfandbriefbank

The Pfandbriefbank schweizerischer Hypothekarinstitute is a specialized refinancing institution that issues covered bonds on behalf of its member banks and passes the proceeds on as earmarked loans secured by mortgages. Its business model is based on a legally enshrined framework that precisely defines the quality of cover assets, the management of collateral, and creditor protection. A central feature is the statutory requirement to hold equity capital equal to 2% of outstanding covered bonds. This minimum ratio provides an additional safety buffer and means, in practice, that growing issuance volumes are regularly accompanied by capital increases to ensure compliance. For investors and regulators, this setup is attractive because it creates clear liability rules and enhances system stability. For banks, it offers the advantage of accessing long-term CHF funding at competitive terms, well-aligned with liquidity and refinancing goals. Further information on the Pfandbriefbank and its role in refinancing can be found here.

6. The Role of the Pfandbriefzentrale

The Pfandbriefzentrale der schweizerischen Kantonalbanken fulfills an analogous role for the group of cantonal banks. It also issues covered bonds and passes on the proceeds as secured loans, with coverage based on mortgage collateral and strict requirements on loan-to-value ratios, valuations, and overcollateralization. The Pfandbriefzentrale is thus the sister institution to the Pfandbriefbank, but focused on the cantonal banks. Together, they form the backbone of Switzerland’s covered bond system, tightly linking the capital market with real estate financing and keeping credit creation in orderly channels. For investors, this dual structure creates a broad, liquid, and high-quality CHF investment universe that can be staggered across maturities and serves as a stable building block in asset allocation.

7. Demand for Covered Bonds

Investor demand is concentrated among actors who value quality, predictability, and regulatory usability. Banks use covered bonds to manage liquidity ratios and obtain an instrument compatible with internal treasury goals. Insurance companies and pension funds find in covered bonds an investment that delivers stable returns in Swiss francs while being underpinned by a particularly robust legal framework. This demand supports market depth and ensures that new issues remain well-placed across the cycle. For issuers, this creates a refinancing source that is more accessible in stress phases than unsecured alternatives. For investors, it results in a risk-return profile with few substitutes in the CHF market.

8. Why Talking to a HYPOHAUS Mortgage Expert Pays Off

The current market environment shows: mortgage financing has become more complex. For private individuals as well as for investors, it is therefore worthwhile to carefully review their financing situation and explore potential optimizations. As an independent mortgage expert, HYPOHAUS provides valuable support—from analyzing existing mortgages to developing tailor-made financing strategies.

With access to a broad range of offers and deep market expertise, HYPOHAUS ensures that clients are optimally positioned in any market situation. Learn more here: HYPOHAUS – Our Services