FINMA warns Swiss banks are too lax with mortgages

The head of the Swiss financial watchdog, FINMA, which is responsible for verifying financial data, told Blick that some Swiss banks are being too lenient with mortgage approvals, even as the risk of a housing market correction increases.

Switzerland’s housing market has been a source of concern for regulators for years. Low interest rates, combined with sustained demand for real estate, have driven property prices to record highs. Analysts warn that overvaluation, coupled with loose lending practices, could leave banks exposed if market conditions shift abruptly.

Its chief executive, Stefan Walter, objected to the banks’ approach, which has been criticized for its overreliance on internal benchmarks for determining eligibility. He stated in his interview, “At many banks, exceptions to internal lending criteria range between 25 and 40%. When we identify this, we warn these institutions that it is neither in the bank’s nor their customers’ interest.”

Finma’s annual risk review, released early this week, similarly noted overly lax lending practices. Walter ascribed the reason in large part to the high level of competition, explaining that it’s difficult to grow in an oversaturated market. He cautioned that in a market with rising property values, banks feel pressured to relax lending standards.

Walter urged that banks remain resilient in the face of uncertainty

Walter also explained that external threats to Switzerland’s financial sector had become more serious, including sanctions, government debt, geopolitical conflicts, high stock prices, and bond risk premiums.

He noted that Swiss financial institutions must remain resilient in the face of uncertainty, as external shocks can occur at any time. He emphasized the need for robust management and strict risk control.

He also insisted that the regulator keep bank names confidential unless additional capital is required. Walter added that any fines must be enforceable for all banks to prevent perceptions of bias. He also explained that UBS’s total assets exceed Switzerland’s yearly economic output, making stricter standards essential.

Swiss National Bank property taxes could decline by up to 22%

According to the Swiss National Bank, the index of single-family home prices in Switzerland has set new records, following 25 years of steady growth since the 1990s downturn. By contrast, in a September vote, Swiss people voted to abolish a property tax system that had lasted a century, a change that will save homeowners money and could drive up real estate prices even more.

Official results indicated that 57.7% of the electorate voted for the proposal in the referendum, despite earlier polls predicting a close race. The reform eliminates the so-called imputed rental value tax on homeowners’ potential rental income. This decision was both a hotly debated issue in parliament and approved by the government.

Currently, Raiffeisen Switzerland estimates that homeowners’ property taxes could fall by up to 22%, depending on each person’s circumstances. The bank, however, forecasts a 5% to 7% increase in house prices over the coming year, driven by the appeal of living in one’s own home. Still, only about four in ten Swiss own a home, reflecting the country’s lowest homeownership rate in Europe, and will therefore benefit from the changes.

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