Bern moves again to cool hot property market
In a move opposed by Swiss banks, the federal government is taking action aimed at preventing Switzerland’s high-priced residential property market from overheating.
As of June 30th, Swiss banks will be required to double their capital reserves for residential mortgages to two from one percent of their risk-weighted assets secured by home properties, the federal department of finance administration announced on Thursday.
The government hopes the move will curb the rise in mortgages and real estate prices.
But the Swiss Bankers Association said it was disappointed by the move, arguing that it did not believe that boosting capital buffers were an effective means of controlling property.
The impact of such measures was "too broad" and had not been "tested in reality", the association said in a statement on its website.
The requirement for higher capital was recommended by the Swiss National Bank (SNB), Switzerland’s central bank, which has been raising the alarm for some time about the danger of a bubble in certain hotspots of the country.
These include the Zurich and Lake Geneva regions where home prices have continued to rise at a higher level than overall economic growth and personal income.
“The SNB has come to the conclusion that is necessary to increase the countercyclical buffer,” the finance administration department (FFA) said in a news release.
The step follows measures taken last year to dampen demand for mortgages.
While these have helped the resilience of the banks involved, “the sustained strong increase in mortgage loans and the prices of residential properties has cause the imbalances to become even greater in the current low-interest environment,” the FFA said.
The imbalances pose a “considerable risk” to the Swiss economy and its banking sector, the department said.
The extra capital requirements are aimed at the residential property market and do not affect other loans, such as those for companies, it said.
Levels of debt from mortgage loans in 2013 reached “particularly worrisome levels” in relation to income, FFA said.
Residential property prices “have risen to an extent which cannot be explained solely by factors such as population growth or rising income levels”.
Despite the dangers, there are still signs that banks are “very willing” to take risks when granting residential mortgages.
The federal government said it support efforts by the SNB, the Swiss Financial Market Supervisory Authority (FINMA) and the federal department of finance to strengthen self-regulatory guidelines on mortgage lending.