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Swiss banks agree lending curbs to try to calm housing market
June 24, 2014 / 1:35 PM / 3 years ago

Swiss banks agree lending curbs to try to calm housing market

ZURICH, June 24 (Reuters) - Swiss banks will tighten requirements for mortgage loans after repeated warnings from Switzerland’s central bank and the International Monetary Fund of a looming housing bubble.

Switzerland’s lenders and financial regulators have been at odds on how best to safeguard 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 back rates to lessen the appeal of the safe-haven franc and stave off a recession.

On Tuesday, Switzerland’s banking association said it cut the required time by which one-third of any mortgage must be repaid to 15 years, from 20 currently. Banks will also apply a more conservative measure of price when financing property loans.

“These measures will contribute to a calming and stabilisation of potential hotspots in the real estate market,” the Swiss Bankers Association said in a statement.

The move represents a preemptive strike against measures being readied by the government, which fears the high debt levels could provoke a crash if the economy went into recession.

The lobby said it would submit the measures to FINMA, Switzerland’s banking regulator, for endorsement.

The Swiss National Bank, hamstrung by rising housing prices because it cannot lift interest rates due to a cap it has set on the Swiss franc, warned banks about their lending methods as recently as last week at its quarterly rate-setting session.

The SNB said it had seen a slight slowdown in the pace of mortgage lending growth, but stopped short of giving the all-clear on the housing market.

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.

Overheating housing prices have led Swiss officials to impose an extra capital layer on banks to rein in home equity lending. (Reporting By Katharina Bart: editing by John Stonestreet)

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