LONDON - The Swiss government on Wednesday said banks would be required to hold additional capital for residential mortgages amid concerns that the country’s booming property market is overheating.
Switzerland, which already has more stringent capital rules for its banks than other European countries, said lenders would be required to hold an extra 1 percent of risk-weighted assets to make the financial system more stable in light of an “excessive rise in prices in the real estate market and exorbitant mortgage debt.†Banks have until Sept. 30 to comply.
Property values in Switzerland have been rising as investors spooked by the uncertainties of the economic crisis in the eurozone sought a more stable places for their money. Greater demand for Swiss homes have pushed up prices at a time of low interest rates and forced many buyers to take on larger mortgages. The Swiss central bank has been unable to cool the market by increasing borrowing rates because of an overvalued Swiss currency.
An index created by UBS measuring the likelihood of a Swiss property bubble was “clearly in the risk zone,†the Swiss bank wrote in a note to investors earlier this month. In the final three months of last year, house prices soared to six times the annual average Swiss household income compared to about four times in 2000, according to the bank. It called the ever rising demand for properties not intended for personal use “remarkable.â€
The government said it was following a recommendation by the Swiss National Bank to increase the capital buffers. “The sustained growth in mortgage debt and rise in real estate prices of residential properties has led to imbalances which pose a significant risk to the stability of the banking sector and to that of the economy,†the government said in a statement.
Mortgage debt has been growing faster than the economy and mortgage volume in relation to income has reached “risky†levels, the government said. It added that residential property prices have gained more than what is justified by fundamental factors.
UBS and Credit Suisse, Switzerland’s biggest banks, both said earlier this month that they are working on increasing their capital buffers and that the suggested increase would not change their plans.
