Expert puts things into perspective FINMA warns of risks - will mortgages soon be out of reach for many?

Stricter guidelines, new warning signals: Finma sees the real estate market as one of the biggest risks for the financial center. But there is opposition from the industry - many banks have long been cautious.

The Swiss Financial Market Supervisory Authority (FINMA) has issued an urgent warning: the risks on the Swiss real estate and mortgage market continue to be among the greatest threats to the Swiss financial center.

In a newly published supervisory communication, Finma reveals where banks and insurers are showing weaknesses - and where there is an urgent need to catch up in terms of regulation. Specifically, FINMA is calling for stricter checks on the granting of loans and mortgages.

The focus is particularly on the credit default risk: according to Finma, many banks are too lax in their criteria for assessing the affordability of mortgages. Internal guidelines are often interpreted too generously - and in some cases systematically circumvented. "Exception to policy" cases, i.e. loans outside of the bank's own guidelines, are not uncommon according to the authority.

Real estate valuations with fair calculations?

Finma is calling for stricter and sustainable affordability criteria, particularly in view of possible interest rate rises in the coming years.

The regulators are also sounding the alarm when it comes to the valuation of investment properties. According to Finma, banks are using capitalization rates that are too low - which could inflate market prices.

The regulatory minimum standard is often exhausted. Finma is insisting on clear valuation methods that must be reviewed and documented annually.

"The banks are already more restrictive"

Rolf Wirnsberger, Broker Owner at real estate agent Remax, deals with customers who want to buy their own home on a daily basis. He sees the other side and says: "If you compare it to two or three years ago, you can see that the banks are already more restrictive now." The banks are already more critical and are taking a closer look. "Banks are calculating with 5 percent mortgage interest as the limit. This means that if interest rates rise, borrowers will still be able to pay."

In Switzerland, however, we are at half the limit, i.e. between 1.7 percent and 2.5 percent. He gives an example: "If a customer brings 20 percent equity, the mortgage interest rate is between 1.7 percent and 2.5 percent."

A comparison with America

In Wirnsberger's eyes, Finma is missing its target: "They want to show that they are looking closely, but in my opinion they are looking in the wrong place."

He believes that FINMA has drawn a link to America during the major financial crisis. But things went differently there. "There, banks didn't take equity, but financed 100 percent. That's not the case here."

And he continues: "When I look at how people at the bank have to show where the money comes from and what their finances, income, etc. are like, I think they are already being checked pretty closely."

Demand is there, space is lacking

Nevertheless, Wirnsberger does not believe that the home ownership market is at risk. "I think the problem lies more with commercial properties." In the private sector, customers are generally showing a certain reluctance. However, this also has to do with many factors that may not directly affect Switzerland.

"The reluctance has more to do with the environment. For example, with the global political situation in America and Germany. The conflict in Russia, Ukraine and the situation in the Middle East. All of this is hitting people and then they think twice about making an investment," explains Wirnsberger.

But that doesn't mean that nothing is possible. The desire to own a home in Switzerland is still there. But there is a lack of space and the authorities are strict. He says: "Compared to other countries, we have a small proportion of homeowners. People have realized that the hurdles are greater. Prices have risen in the last 10 to 20 years."

The problem: "We also have more and more people in Switzerland and we can't cope with this because some of us no longer have the space." However, this is more of a political issue and not a question of financing.