Federal Council reinforces measures to counter overheating on mortgage market
Bern, 23.01.2014 - The Federal Council is continuing to take action against excessive growth on the real estate and mortgage markets. During its meeting yesterday, the Federal Council accepted the Swiss National Bank's request to increase the countercyclical buffer. Accordingly, banks will be obliged to increase the capital for residential mortgages from 1% to 2% from 30 June 2014.
At the request of the Swiss National Bank (SNB), the Federal Council can oblige banks to hold additional capital in the form of a countercyclical buffer based on the Capital Adequacy Ordinance (CAO). Yesterday, the Federal Council decided to increase the countercyclical buffer from 1% to 2% in line with the SNB's request.
The SNB has come to the conclusion that it is necessary to increase the countercyclical buffer. While the activation of the countercyclical buffer in February 2013 and the other measures gradually introduced up until the start of 2013 to reduce the risks in the Swiss mortgage and real estate markets have boosted the resilience of the banks concerned, the sustained strong increase in mortgage loans and the prices of residential properties has caused the imbalances to become even greater in the current low interest rate environment. These imbalances constitute a considerable risk for the stable development of the economy and thus for the stability of the banking sector too. The SNB has thus requested that banks be obliged from 30 June 2014 to hold additional allowable equity capital in the amount of 2% of their risk-weighted assets (RWA), whereby a residential property in Switzerland acts as real security (in accordance with Art. 72 CAO). The increased countercyclical buffer continues to be aimed at mortgage loans for residential property. Other loans, in particular those for companies, are not affected by this measure.
The primary objective of the countercyclical buffer is to make the banking sector and the overall economy more resilient to the risks posed by excessive credit growth. However, increasing the countercyclical buffer should also help curb the rise in mortgages and real estate prices. Various indicators highlight the need for this measure.
Last year, the levels of debt arising from mortgage loans continued to rise and reached particularly worrisome levels in relation to income. Even residential property prices have risen to an extent which cannot be explained solely by factors such as population growth or rising income levels. The relationship between residential property prices and rents has in the meantime reached a level which was last seen during the real estate boom at the end of the 1980s. Moreover, there are still signs that banks are very willing to take risks when granting residential mortgages.
Complementing the countercyclical buffer, talks are currently taking place between the Federal Department of Finance (FDF), the Swiss Financial Market Supervisory Authority (FINMA), the SNB and the sector in order to strengthen the self-regulatory guidelines. The Federal Council supports these efforts.
Address for enquiries
Serge Gaillard, Director of the Federal Finance Administration FFA
Tel. 031 322 60 05, Serge.Gaillard@efv.admin.ch