Concerns about exposure in the residential mortgage market, and in the investments sector in particular, have prompted regulators and the banking sector to propose tighter lending conditions.

The Swiss Bankers Association has changed the self-regulation system for residential property mortgages, hiking minimum downpayments and taking other measures to guard against a future real estate slump.

The changes are designed to raise borrowers’ downpayments to 25 per cent of the lending value from the previous 10 per cent, and shorten the repayment period for the loan in the case of investment property financing, the SBA said yesterday. 

The banking sector is acting rapidly to make the residential mortgage market more stable, hence bolstering the wider financial sector, it said. The self-regulation approach will allow the Swiss government to forgo tightening capital adequacy amounts linked to such mortgages, the statement continued. 

For investment properties, the mortgage must now be amortised to two thirds of the lending value of the property within a maximum of 10 years (hitherto 15 years), the organisation said.

Switzerland is acting after the national regulator, FINMA, warned in its annual report that “strong vacancy growth in residential investment properties and the sustained high level of construction have increased Swiss real estate market risks”. 

FINMA also warned that investment properties were particularly exposed. The mortgage volume held by Swiss banks has doubled over the past 15 years and amounted to SFr1.044.6 trillion ($1.064 trillion) at the end of 2018. “Institutions with significant mortgage exposure to the investment property sector (which has a higher loan-to-value ratio) would be directly affected by an abrupt fall in prices,” it said.