Swiss banking regulator plans measured approach to cooling property market

Frankfurt: The Swiss National Bank does not expect to use new rules to force banks to build up counter-cyclical capital buffers until 2013 at the earliest, as it believes the country’s red hot property market may be starting to cool.

In July, Switzerland introduced rules allowing the SNB to request that the government make banks boost core tier one capital by up to 2.5 per cent of risk-weighted assets to mitigate threats to the country’s financial stability.

With interest rates near zero and the SNB seeking to prevent the Swiss franc from appreciating, Swiss demand for mortgages has soared, sending real estate prices skywards and prompting some to suggest that the central bank might request the government to act.

However, Thomas Jordan, SNB president, said that although the bank was following developments in the country’s property and mortgage markets closely, a request was not imminent. “It has to be expected that it will only be the case in 2013,” he said in an interview with Swiss television.

The SNB said in a statement that the decision was based on “indications of a possible slowdown” in segments of the residential property market. UBS’s Swiss real estate index fell in the second quarter of 2012, its first decline since the end of 2008.

The SNB also cited the introduction in June of stricter capital requirements for mortgages and a revision of the self-regulation rules on mortgage lending as reasons for its decision.

“Both measures are intended to have a dampening effect on real estate prices and mortgage market momentum,” the bank said in a statement.

However, the SNB added that it continued to see signs of overvaluation in some regions and segments of the residential property market and stressed that the decision not to ask the government to act “should not be interpreted as an all-clear”.

“Interest rates are still exceptionally low and there are signs of high risk appetite in mortgage lending. As a consequence, the risk of a further build-up of imbalances and the associated risks to financial stability remain high,” it said.

According to the SNB’s latest financial stability report, mortgage volumes at domestically focused banks grew on average by 6.5 per cent in 2011, while more than one fifth of new mortgages for owner-occupied residential properties had a loan-to-value ratio of more than 80 per cent.

— Financial Times