Higher Borrowing Costs Are Changing the Economics of Family Property Portfolios
Swiss property investors continue to benefit from relatively low interest rates, while financing costs have risen sharply in Germany and the United States. For wealthy families with property across several markets, refinancing terms, rental income and debt levels increasingly determine what their holdings are worth.
Borrowing costs are putting renewed pressure on property investors in Germany and the United States, where higher bond yields have pushed mortgage rates upwards. In Switzerland, financing remains considerably cheaper, but the international divergence has implications for wealthy families holding residential buildings, commercial property and development assets across several countries.
By October 2026, ten-year fixed mortgage rates in Germany had reached approximately 4.5%, according to financing intermediary Baufi24, while rates for 20-year financing approached 5%. In the United States, the Mortgage Bankers Association reported an average rate of 7.49% for a 30-year fixed mortgage. These figures concern new borrowing rather than the cost of existing fixed-rate loans.
Switzerland presents a different picture. The Swiss National Bank (SNB) kept its policy rate at 0% in September, maintaining monetary conditions that support domestic property financing. Swiss investors have consequently avoided much of the immediate pressure experienced by borrowers in markets with substantially higher interest rates.
The effect of borrowing costs nevertheless extends beyond annual interest payments. Financing rates influence the prices investors can afford to pay, the returns they demand from rental properties and the terms banks offer when existing loans mature. For families whose property holdings account for a substantial share of their wealth, these calculations can determine whether an asset continues to provide attractive income or requires additional capital.
How Higher Interest Rates Change Property Returns
Property investors generally earn returns from two sources: the income a building produces and changes in its market value. Borrowing can increase the return on the equity invested, provided the income and appreciation of the property outweigh the financing costs.
The calculation becomes less favourable when debt costs increase without a corresponding improvement in rental income. A property generating CHF 300’000 in annual net operating income, before financing costs and tax, might carry a mortgage of CHF 5 million. At an interest rate of 1.5%, annual interest expenses amount to CHF 75’000, leaving CHF 225’000 before principal repayments and tax. At 3%, interest expenses double to CHF 150’000, reducing the remaining cash flow to CHF 150’000.
Illustrative financing comparison
For a property with CHF 5 million in mortgage debt and CHF 300’000 in annual net operating income:
At 1.5% interest: Annual financing costs amount to CHF 75’000, leaving CHF 225’000 before principal repayments and tax.
At 3% interest: Annual financing costs increase to CHF 150’000, leaving CHF 150’000 before principal repayments and tax.
The increase reduces the property’s annual cash flow by one-third. It may also affect its valuation if prospective buyers demand higher rental yields to compensate for more expensive borrowing.
Swiss investors have already seen how differently property markets can respond to a change in financing conditions. In its Real Estate Focus 2026, UBS compared diversified property portfolios financed with 66% debt. Between 2020 and 2022, the portfolios generated average annualised equity returns of 15% in Switzerland and 17% in Germany. During 2023–2024, the German leveraged portfolio recorded an annualised return of −15%, while the Swiss portfolio continued to deliver a positive 5%. The analysis included changes in property values but excluded taxes and currency movements.
Borrowing magnifies gains and losses: even a modest change in a property’s value can have a much greater effect on the owner’s equity, especially when debt finances most of the purchase.
Switzerland’s Low Rates Offer Protection, but Not Immunity
Switzerland’s residential investment market has continued to attract capital as low borrowing costs and limited housing supply support demand. UBS reported in July that transaction prices for existing apartment buildings had risen by approximately 6% in 2025 and expected a further increase of around 3% during 2026.
Rental income was also forecast to grow, although more slowly than in previous years. UBS expected average rents across existing tenancies to increase by approximately 1% in 2026, with asking rents rising by around 2%.
Those figures provide some reassurance to owners of established residential portfolios. However, rental growth varies considerably by location and market segment. UBS observed that asking rents for expensive apartments in Switzerland’s major cities had already fallen by 1.4% year on year in the second quarter of 2026, even as demand remained strong for more affordable housing.
Older commercial buildings face different pressures. Companies seeking modern, centrally located offices have become more selective, while demand for less accessible or ageing properties remains weak. UBS expected the Swiss office-space availability rate to increase from 5.5% to 6.0% in 2026.
Property owners need reliable rental income to cover their borrowing costs. Those who keep vacancies low, retain dependable tenants and control maintenance expenses can service their debt more easily than owners facing frequent renovations or prolonged periods without tenants.
Refinancing Can Expose Risks That Were Previously Hidden
Many property owners fix their mortgage rates for several years, allowing them to predict financing costs throughout the agreed term. The exposure becomes more immediate when those agreements expire. A family that secured long-term financing during a period of exceptionally low interest rates may face a different financial calculation when the mortgage comes up for renewal. The interest rate available at that point will depend on prevailing market conditions, the property offered as security, the borrower’s financial position and the lender’s risk assessment.
Banks also examine whether the underlying asset can support its debt under less favourable conditions. In May 2025, the Swiss Financial Market Supervisory Authority (FINMA) published guidance on property and mortgage risks. For income-producing real estate, it identified a stressed interest rate of 5%, together with maintenance costs reflecting the property’s age and condition, as an example of a sustainable affordability assessment. Under the illustrated approach, stressed expenses are measured against sustainable net rental income. The 5% figure is a supervisory stress assumption, not a forecast or a current market mortgage rate.
For landlords, it makes sense to perform a similar calculation before refinancing negotiations begin. A property may comfortably cover its actual interest payments while failing to meet the lender’s assessment of its longer-term ability to service debt.
Falling property valuations can also put pressure on borrowers. If a bank lowers its valuation, the outstanding mortgage accounts for a larger share of the property’s value. Depending on the loan terms, the lender may demand additional equity, faster repayment or more collateral. Families holding several properties through one company, or pledging other financial assets as security, face greater exposure if problems with one property affect their wider portfolio.
Property Valuations Depend on What Buyers Are Willing to Earn
Investors value a building on more than its location, physical condition and rental income. They also compare the income it produces with the returns available from bonds and other investments. When borrowing becomes more expensive or investors demand higher yields, the price they are prepared to pay for a property can fall, even if the rental income remains unchanged. An illustrative property generating CHF 200’000 of annual net operating income would be worth CHF 5 million at a 4% capitalisation rate. At 5%, the same income would support a valuation of CHF 4 million. This calculation uses unchanged income and a simple income-capitalisation method. Actual appraisals incorporate further assumptions, including future rental growth, vacancies, capital expenditure and local transaction evidence.
Borrowing magnifies the effect of falling property values. If an investor initially purchased the CHF 5 million property with CHF 3 million of debt, a reduction in its estimated value to CHF 4 million would leave just CHF 1 million of equity, compared with CHF 2 million originally. The property would have lost 20% of its value, but the owner’s equity would have fallen by 50%, before transaction costs or other adjustments.
Swiss regulators have repeatedly warned that falling property values could leave heavily indebted borrowers exposed. FINMA’s 2025 guidance noted that financing income-producing real estate carries greater risks than lending against owner-occupied housing, particularly for commercial buildings. It recommended that banks generally keep loan-to-value limits for investment properties, including buy-to-let, at no more than 75%, with stricter terms where appropriate. Even a large property portfolio with steady rental income may leave its owners with less financial flexibility than its market value suggests.
The Decision to Hold, Sell or Reduce Debt
Higher financing costs do not automatically make property ownership unattractive. Families with low borrowing, long-term tenants and sufficient cash reserves may be well placed to retain their holdings, particularly where they expect rental income to increase over time.
Owners with substantial debt approaching maturity have more immediate choices. Reducing borrowing can lower interest expenses and strengthen the financial position of a property holding company, although doing so requires capital that might otherwise remain invested elsewhere. Selling an underperforming building releases funds and reduces future commitments, but the proceeds depend on current market valuations, transaction costs and the applicable tax treatment.
Refinancing also involves decisions about interest-rate structures. A longer fixed-rate mortgage provides greater certainty over future payments, while shorter commitments or floating-rate arrangements leave borrowers more exposed to changes in market rates. The relative cost depends on the terms available when the decision is made.
Wealthy families owning properties in several countries must also consider their exposure to currency movements when making these decisions. A Swiss-franc investor holding a German property receives rental income and services local borrowing in euros. A sale or distribution may create currency effects when the proceeds are converted into francs. Financing assets and liabilities in the same currency can reduce some of that exposure, though it does not remove the risk to the family’s consolidated CHF wealth.
Tax rules, mortgage structures and rental regulations also differ across jurisdictions. A financing arrangement that works for a Swiss residential building may not be appropriate for a German office property or a commercial investment in the United States.
Owners should therefore review each property individually before deciding how much debt to retain across the family balance sheet.
Property Within the Wider Family Balance Sheet
Direct property investments occupy a particular place in wealthy family portfolios. They can generate regular income, provide assets that may be transferred between generations and offer greater control over investment decisions than many pooled financial products. They also require considerable capital, often involve substantial borrowing and cannot be sold as readily as publicly traded securities.
These characteristics become more consequential when property represents a large proportion of family wealth. Several buildings in different cities may provide geographical diversification, but they can still share exposure to financing conditions, construction costs or a downturn in property valuations.
Families may also hold property indirectly through listed real estate companies and investment funds. These investments offer different degrees of liquidity and diversification, although market prices can move independently of the underlying properties’ reported valuations.
UBS highlighted this valuation issue in its 2026 real estate research. At the end of February, Swiss listed property funds traded at an average premium of 39% to their reported net asset values, while the corresponding premium for listed property companies was almost 50%. Distribution yields stood only slightly above 2%.
Investors acquiring these securities were therefore paying considerably more than the reported underlying net asset values. Their subsequent returns would depend not only on property income and valuations, but also on whether those market premiums persisted.
Families reviewing their investments should compare property returns with those available from liquid assets, while allowing for future distributions, renovations and refinancing costs. Even a profitable long-term property investment can tie up more capital than a family can afford to have out of reach.
Families with substantial property holdings should ask their property manager, banker or family office to prepare a consolidated review using five financial measures.
1. Debt Maturing Within the Next Five Years
Request a schedule showing the outstanding loan balance, current interest rate and refinancing date for each property. Include variable-rate borrowing and any large principal repayments due at maturity.
2. Net Rental Income After Operating Costs
Compare rents actually collected with maintenance, management, insurance, vacancy and other operating expenses. Identify buildings where scheduled renovations or expiring leases could reduce income.
3. Debt-Service Coverage Ratio
Divide net operating income by annual interest and scheduled principal repayments. A ratio below 1 means the property’s operating income does not fully cover its scheduled debt service. Test the result under higher refinancing rates and weaker rental income.
4. Current Loan-to-Value Ratio
Compare outstanding debt with an updated, supportable property valuation. Ask how the ratio would change if the property’s value fell by 10% or 20%, and whether that could affect refinancing or collateral requirements.
5. Cash Required Under Adverse Conditions
Calculate how much additional capital the family might need if several mortgages refinance at higher rates while vacancies, repairs or capital expenditure increase. Check that the necessary funds are available without forcing the sale of other investments.
Families should then identify which properties can cover their costs under difficult conditions, which may require additional equity and which need refinancing discussions before their current loan agreements expire.
