Stricter regulations in mortgage lending

The Federal Council has decided to follow the request of the Swiss National Bank (SNB) and reactivate the countercyclical capital buffer (CAC). Banks are now required to hold additional own funds as of September 30 of this year. These own funds comprise 2.5% of those risk-weighted positions that are directly or indirectly secured by a residential property in the domestic market. This means that the CIP is 0.5 percentage points higher than before its deactivation in March 2020.

The CACP had been deactivated at the beginning of the Corona crisis to give banks more leeway in lending to companies. Since then, however, vulnerabilities in the mortgage and residential property markets have increased, the Federal Council said. Both the volume of mortgage lending and residential property prices have risen more than fundamentals such as rents or incomes can explain, he said. The risk of an abrupt correction in the markets, triggered for example by an unexpectedly sharp rise in interest rates, had increased. Such a correction would have serious consequences for borrowers and the banking sector or the Swiss economy, the Federal Council said. In addition, the economic situation has brightened compared to the start of the pandemic, and there are no signs of a credit crunch for companies.

The reactivation of the CACP will lead to a temporary increase in capital requirements for mortgage loans on residential properties in Switzerland, the SNB notes. This will primarily maintain or, where necessary, strengthen the resilience of the banking sector. Developments in the mortgage and real estate markets will continue to be closely monitored and it will be examined whether further measures are necessary to contain the risks to financial stability, the SNB added.