Swiss government holds off on mortgage lending rules for banks

ZURICH, July 2 Wed Jul 2, 2014 12:40pm EDT

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ZURICH, July 2 (Reuters) - Switzerland has opted not to impose new measures on lenders to cool demand in the overheated domestic housing market, saying curbs proposed by banks themselves are sufficient for now.

Swiss lenders and financial regulators have been at odds on how best to guard against the risk posed by historic highs in house prices and mortgage debt, driven in part by ultra-low interest rates.

The Swiss central bank has pared rates to lessen the appeal of the safe-haven Swiss franc and stave off a recession.

The government on Wednesday welcomed stiffer standards for mortgage loans proposed by the banking industry last week, saying those measures could help rein in the risks linked to rising house prices.

"For the time being, the Federal Council (Swiss government) ... does not envisage taking further measures," the government said in a statement.

The move represents a win for Switzerland's banking association, which has avoided further government measures after twice being ordered to hold extra capital against risk-weighted assets in mortgage portfolios.

The lobby last week promised banks will cut the required time by which one-third of any mortgage must be repaid to 15 years from 20. Banks will also apply a more conservative measure of price when financing property loans.

Swiss cooperative bank Raiffeisen, cantonal banks such as Zuercher Kantonalbank and Banque Cantonale de Geneve , and other regional lenders provide the bulk of Swiss mortgage lending.

FINMA, Switzerland's financial regulator, described the measures which are due to come into force on Sept. 1 as a step in the right direction.

The government said it would decide by year-end whether more demand-side measures are necessary and echoed comments from the Swiss National Bank last month on higher capital requirements for lending banks.

A spokeswoman for the Swiss Bankers Association said the lobby group welcomed the support of the new rules.

Last week, Britain became the biggest economy to date to impose mortgage lending curbs, when the Bank of England imposed its first limits on how much most people can borrow to buy a home. (Editing by David Holmes)

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