Swiss banks prefer to counter the risks inherent in the hypo business on their own initiative. Now, surveillance is making progress for self-regulation.
The Swiss Financial Market Supervisory Authority (Finma) recognizes banks' customized self-regulation on mortgage lending as a minimum standard. That came from a statement by authorities on Wednesday. The rules shall enter into force on 1 January 2020.
As well finews.ch The banks sent self-regulation into the race through the umbrella organization Swiss Bankers Association (SBA), after testing the mortgage portfolios at various institutions at the start of the year. From the point of view of Finma and the Swiss National Bank (SNB), the investment real estate segment is considered particularly risky.
More than double your own resources
The changes now outweighed by the supervisory authority exacerbate lending and amortization requirements in this area. Self-regulation now provides that mortgage lending for investment property requires at least 25 percent of the loan’s value, the borrower as own funds, and not just the previous 10 percent. In addition, mortgage debt must be amortized within a maximum of ten, instead of the past 15 years, at two-thirds of the loan value.
However, the tightening only affects new business, i.e. neither existing financing nor existing standards for owner-occupied residential property.
Not sharp enough yet
Self-regulation also does not cover so-called rented properties, which make up about a quarter of investment. These are usually residential buildings and detached houses of private individuals, not occupied but rented.
Finma therefore recommends that banks voluntarily apply stricter own funds requirements and depreciation to finance the real estate they purchase.