Swiss mortgage lending is «too big to fail» for the country's financial system, leading the regulator to issue a starkly-worded warning. More regulation to ease the property bubble looms.
Finma CEO Mark Branson warned of an overheating in Switzerland's property market, at the Bern-based financial regulator's annual conference. «The mortgage market is critical to the stability of the Swiss financial centre. It is too big to fail», Branson said.
His observation isn't anything new for the finance industry: UBS' real estate index has signaled «risk» territory since 2015, and the most recent reading highlighted overheating in areas surrounding Geneva's Lac Leman, Zurich, Basel, Lugano, and the area around high-end ski resort Gstaad.
Hamstrung on Rates
For Finma, the risks are worrisome because rents are stagnating while vacancies – and prices – rise. «We intervene when individual institutions take on excessive risks, but we believe this is not enough to counteract the generalized overheating trends we are currently seeing», Branson said.
His comments address to pre-empt any regulatory action crimping lending for so-called investment, or yield-producing, properties. The segment has grown by leaps and bounds, fostered by hamstrung Swiss monetary policy.
«The signs of overheating in investment property can only be dealt with effectively by making changes to regulation or self-regulation», Branson said. The warning effectively puts the ball in the banking industry's court – to propose self-regulation measures which Bern would deem effective.
