Swiss banks are planning stricter rules for mortgage lending, including shortening the period for loan repayments, to cool the real estate market and prevent regulators from introducing stricter capital requirements.
Loans will have to be repaid in regular installments to two-thirds of the collateral value within 15 years, compared with 20 years previously, the Swiss Bankers Association said in a statement today. When valuing the properties, the banks will use the lower of the market value or purchase price, and a borrower’s secondary income will only be considered when evaluating affordability in case of joint liability, it said.
“These measures will contribute to a calming and stabilization of potential hot-spots in the real estate market,” the group said. “It is very important that these measures are now given sufficient time in order for the effects to take hold. The SBA therefore assumes that for the time being, no additional measures will be introduced on the part of the government.”
In a bid to prevent the market from overheating, the government in January forced banks to hold additional capital as a buffer against possible losses on home loans. This so-called countercyclical capital requirement -- now at 2 percent of risk-weighted mortgage assets -- can be raised as high as 2.5 percent.
The association will submit the revised rules for mortgage lending to the Swiss Financial Market Supervisory Authority, or Finma, for approval as the minimum standard. Finma Chief Executive Officer Mark Branson said last week that the Swiss mortgage market, which is still growing faster than the economy, is one of the biggest risks facing the country’s financial system and that the regulator would welcome further measures to curtail demand for home loans.
The Swiss National Bank has also been warning about risks to financial stability from imbalances in the real estate market. Mortgage volume of domestically focused commercial banks expanded 4.9 percent last year, compared with 5 percent in 2012, the central bank said in a report last week, adding that measures to encourage more cautious mortgage lending should be considered.
“Efforts should now be directed toward preparing regulatory measures that could be implemented swiftly should momentum pick up again on the mortgage and residential real estate markets,” the SNB said.