Switzerland tightens capital requirements on home loans

Switzerland has introduced a 1% equity ‘anti-cyclical capital buffer’ for banks offering home loans to prevent negative effects on the economy from a current imbalance caused by significant credit and house price growth over the past years.

The measure, which will take effect in September, was proposed by the Swiss National Bank and ratified by the government last week. “The imbalance intensified over the second half of 2012 and has now reached a magnitude that constitutes a risk for the stability of the banking system and thus for the Swiss economy,” said SNB in a statement. The buffer should make banks’ property loan provision relatively less attractive compared to other loans.

Swiss house prices rose by around 30% over the past 10 years, with higher growth figures in the larger cities, led by Geneva at 136%, according to Swiss property service company Wüest & Partner. The scope for an interest rate increase, which would also dampen the property loan and investment markets, is very limited, said SNB. Many analysts, including the major banks, have warned that Swiss housing is now in a bubble, the collapse of which could have gravely negative consequences for the entire economy. pie