Switzerland's central bank is keeping a watchful eye on the domestic housing market – and vulnerability of home equity lenders to a bubble.
The Swiss National Bank left its ultra-loose monetary policy unchanged at its quarterly assessment on Thursday. SNB vice-chair Fritz Zurbruegg (pictured below) highlighted the fragility of domestic mortgage lenders to the overheated Swiss property market, according to prepared remarks.
«These vulnerabilities have increased further since the onset of the coronavirus pandemic, as mortgage growth and price rises for residential property have been higher during this period than can be explained by fundamental factors such as income and rents,» Zurbruegg said.
Negative interest rates – aimed at staving off massive haven inflows into the Swiss franc – have also fueled a boom in home equity loans in Switzerland. Traditionally roughly only one-third of residents in the alpine nation own their homes.
«The SNB continues to monitor developments on the mortgage and real estate markets closely, and regularly reassesses the need for a reactivation of the countercyclical capital buffer,» Zurbruegg said. This refers to an additional layer of capital required of banks for major lending books. Swiss financial regulator Finma last month also listed a mortgage and housing bubble as one of its chief worries.
Zurbruegg, who is to depart next year, voiced confidence on the solidity of Switzerland's big banks, UBS and Credit Suisse. Specifically, he mentioned higher client activity, a rise in assets under management, and the ensuing lift in commissions and fees. He also noted that some reserves stowed against dud credit were able to be released, as they weren't used.
