March 11, 2010 / 3:56 PM / 10 years ago

SNB sends warning on excessive mortgage borrowing

* SNB says banks, borrowers should be cautious on debt

* SNB sees low rates leading to more mortgage lending

* Mortgage lending rose 5.3 pct y/y in January

By Catherine Bosley

ZURICH, March 11 (Reuters) - The Swiss National Bank warned banks and borrowers on Thursday about taking on too much debt while interest rates were still very low, indicating it is concerned about a possible housing bubble.

The SNB kept rates at rock-bottom at its regular policy review but raised its growth forecast and predicted that inflation would breach its 2 percent threshold for price stability by 2012. [ID:nLDE6291VQ]

“The SNB is warning banks and borrowers to be extremely cautious,” the central bank said in its quarterly policy statement. “The fact that interest rates are exceptionally low by historical standards must be taken into account.”

Some analysts said that was a hint that unless borrowing growth eased off, concerns over the formation of a new housing bubble would add to the case for the bank to raise interest rates.

Switzerland emerged from recession last summer much less bruised than many of its European peers. Swiss mortgage lending rose during the crisis, in stark contrast to the euro zone.

The SNB said mortgage lending rose 5.3 percent on the year in January.

“What they wanted to avoid is house prices going up too much in response to a slightly brighter economic outlook. That would mean another bubble,” said Henrik Gullberg of Deutsche Bank. “One way of doing that is to keep sending these verbal warning shots while policy is still very expansive.”

Some analysts have argued that the central bank may raise borrowing costs earlier than the market currently predicts, and despite the strong Swiss franc, due to the housing concerns. [ID:nLDE6182EX]

The SNB said it was conducting an in-depth investigation into banks’ mortgage-granting practices and that it would work with regulators to see if any corrective steps were needed.

SNB statistics show that prices for single family homes in Switzerland rose by some 4 percent last year.

SNB vice-chairman Thomas Jordan warned as early as autumn last year of a possible bubble in the private housing market.

The bank’s stance is also of key importance to mortgage borrowers in eastern Europe, where thousands of Poles and Hungarians see payments for franc loans rise when Swiss interest or exchange rates rise.

Editing by Patrick Graham

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