The Swiss banking industry is planning to tighten the rules on residential housing borrowing. The bid comes as the industry regulator voiced its concern about risks associated with the boom in this asset class.
The Swiss financial market regulator (Finma) at the end of last year organized a so-called stress test at 20 major Swiss banks to evaluate their resilience to a real estate crisis. It kept the results of the test secret, but nevertheless it emerged that all was not well. The banks, aware of the threat of more stringent regulation by the state, quickly launched a bid to tighten the screws themselves.
An Alternative to Government Bonds
The Swiss Bankers Association is currently floating ideas among its members of how to deal with the problem, according to a report by «Aargauer Zeitung». The focus of the tighter rules will be the residential investment property market, which includes some 30 percent of all mortgages.
The market ballooned in recent years as investors sought low-risk alternatives to government bonds after the central bank cut interest rates below zero. The boom led to a glut of apartment blocks in sub-prime locations.
Presentation of Proposals
The banks are thought to favor a change in the level of how much an investor can borrow as a percentage of a property price. Currently, the maximum stands at 80 percent and the Swiss Bankers Association is said to suggest a reduction to 75 percent of the total price. In addition to this reduction, the banks also will enforce a reduction in the number of years it takes the borrower to pay off his debt.
The changes proposed will be presented as early as August 2019, the report in the newspaper said. The industry had tightened the rules already once, in 2014. The Swiss National Bank also demanded banks to increase equity in a bid to reduce their exposure to a potential crisis in the residential housing market.
