The Swiss financial regulator has warned banks that rules on mortgage lending may be further tightened if they fail to control their appetite for dishing out real estate credit. Loans tipped the one trillion franc mark in 2018 and continue to swell, particularly in the buy-to-let market.
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At its annual media conference on Thursday, the Swiss Financial Market Supervisory Authority (FINMA) turned its attention to a trend of investors putting their money into bricks and mortar, with the support of banks.
A stress test carried out by FINMA late last year on 18 banks showed worrying signs of what might happen once rock bottom interest rates start to rise. Such an event would increase the burden on investors paying back loans and likely have a negative impact on the value of the properties they own. This could lead to defaults on loans issued by banks.
FINMA director Mark Branson said he is determined to avoid the type of financial crisis that Switzerland experienced in the 1990s when the housing market collapsed. “The mortgage market is critical to the stability of the Swiss financial centre,” he said. “It is too big to fail.”
Regulatory measures
The volume of mortgage loans in Switzerland has doubled in the last 15 years, and by 45% in the last decade since the global financial crisis, FINMA said. At the same time, 70,000 homes stood empty in mid-2018, realising no rental income. Branson said this represented a “ghost town” the size of the Swiss capital Bern, which “greatly increases the risk of price corrections and loan defaults.”
Branson invited banks to toughen up their self-regulatory measures in relation to the buy-to-let market. “The alternative would be to raise capital requirements for investment property,” he warned.
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Swiss homeowners face tighter mortgage rules
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Despite a tepid economy, the rock-bottom rates continue to pump Swiss property prices higher, a development that is worrying financial regulators seeking to avoid a bubble. In a bid to staunch the flow of credit for real estate, the finance ministry has proposed stiffer capital requirements for Swiss mortgage lenders, following direction given by the…
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As of September 30, banks must boost their capital buffers against domestic mortgage loans by another one per cent. This would mean around SFr3 billion ($3.3 billion) extra capital being tied down in the banking system. The government issued the order on the recommendation of the Swiss National Bank (SNB) as property prices in major…
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