Federal Council welcomes self-regulatory measures to counter overheating on mortgage market
Bern, 02.07.2014 - At its meeting today, the Federal Council discussed the situation on the real estate and mortgage markets. It welcomed the increase in the minimum requirements by the Swiss Bankers Association in its guidelines on the granting of mortgages and therefore does not envisage introducing any additional measures to suppress demand for mortgages for the time being. Developments on the real estate and mortgage markets will continue to be monitored.
The imbalances in the real estate and mortgage markets continued to grow in the last few quarters. The increase in mortgage loans and real estate prices has slowed down somewhat but the increase is still higher than that of earnings. Time and again there was a considerable risk posed by the real estate market in the past for the development of the overall economy and public finances as well as for financial stability. Falling real estate prices can trigger prolonged recessions and can lead to banks making big losses. Developments along the lines of even bigger imbalances are therefore a cause for concern.
A rise in interest rates would have a restrictive impact on the dynamics of the real estate and mortgage markets. For the time being, however, a return to normal interest rates is not expected. In a situation such as this, measures should be favoured which curb demand for residential property and mortgage lending.
On 23 June 2014, the Swiss Bankers Association took the decision, based on existing legislation, to amend two self-regulatory guidelines with regard to the mortgage market. In the revision, the deadline for paying off the mortgage debt of two-thirds of the amount loaned was shortened from the current period of 20 years to 15 years whereby the repayment must be made in regular tranches or on a straight-line basis. Today, FINMA recognised the amended self-regulatory guidelines as the minimum standard.
The higher minimum requirements when granting mortgages represents a step further in the view of the Federal Council in the procedure to combat excessive price rises and mortgage loans in the real estate markets. They could contribute to reducing the risk of a further development of imbalances. For the time being, the Federal Council thus does not envisage taking further measures. At the same time, the Federal Council has instructed the FDF to continue to keep an eye on the situation on the real estate and mortgage markets. Should imbalances on the credit markets once again worsen contrary to expectations, the Federal Council will take a decision at the end of the year on introducing additional demand-side measures. For its part, the Swiss National Bank regularly examines whether or not the countercyclical buffer which complements the demand-side measures has to be adapted.
Address for enquiries
Serge Gaiilard, Director, Federal Finance Administration FFA
Tel. 031 322 60 05, serge.gaillard@efv.admin.ch
Publisher
The Federal Council
https://www.admin.ch/gov/en/start.html
Federal Department of Finance
https://www.efd.admin.ch/efd/en/home.html
