Strong real estate prices in Switzerland haven’t quite reached the ultimate “bubble” stage where alarms would be triggered in central banks and parliaments, but they have crept higher in the second quarter to a level seen as risky, UBS says.

Strong real estate prices in Switzerland haven’t quite reached the ultimate “bubble” stage where alarms would be triggered in central banks and parliaments, but they have crept higher in the second quarter to a level seen as risky, a barometer produced by UBS shows.

The UBS Swiss Real Estate Bubble Index is in the “risk zone”, at 1.24, edging up by 0.02 points from the previous three-month period.

Almost all sub-indices rose slightly in the second quarter of 2014. Home prices and outstanding mortgage volumes grew marginally faster than incomes compared to the historical trend. The number of credit applications for properties not intended for owner occupancy weakened. The number of risk regions remained unchanged, the bank said.

The index is made up of six sub-indices that track different relationships, such as links between purchase and rental prices; prices and household income; mortgage debt and income, construction and gross domestic product, and GDP and proportion of credit applications by UBS clients for residential property not intended for owner occupancy. The index is calculated as the average of trend-adjusted and standardised indicators weighted using a principal component analysis. The index level shows the deviation in standard deviations from the average, which is normalized to zero.

The index value is categorised into one of five levels: slump (below -1), balance (between -1 and 0), boom (between 0 and 1), risk (between 1 and 2) and bubble (above 2).

UBS said the trend towards tighter regulatory requirements for mortgage lending was constricting prices for residential real estate and “stifling the outlook”.