Criticism of banks: FINMA warns of mortgage risks!

Criticism of banks: FINMA warns of mortgage risks!

The financial market supervisory authority (Finma) has once again sounded the alarm and warned of the risks in the mortgage market. A central theme of the warning is the criticized loose lending by Swiss banks. Over 40% of banks, including cantonal banks as well as regional and Raiffeisen banks, deviate from the official lending guidelines when granting loans for investment properties, such as Daily Gazette reported. Finma no longer considers these deviations to be exceptions.

Finma is calling on banks to exercise more caution and is threatening to implement binding rules in the event of an inadequate response. Claudio Saputelli, Chief Investment Officer at UBS, however, says that the risks of the real estate bubble bursting have decreased. According to the UBS Swiss Real Estate Bubble Index, the risk situation has eased in recent quarters.

Risks and falling demand

Rising interest rates weighed on demand for real estate, particularly private homes. This leads to a slight reduction in the mortgage growth rate. The FINMA makes clear that some banks overestimated their borrowers' ability to repay in 2023, leading to an increased number of inadequately secured loans.

The situation is further complicated by an increase in the proportion of new variable rate mortgages, which has doubled. Rising interest rates increase the interest rate risk for the affected borrowers and the default risk for the banks. This phenomenon contradicts the self-regulatory requirements of the Swiss Bankers Association.

Regulatory pressure and bank reactions

Despite UBS's optimistic statement, FINMA urges caution and has already taken measures to tighten control on irregular lending. They have imposed capital surcharges to ensure that banks do not continue to deviate from their own lending criteria and thus endanger financial stability.

In summary, the mortgage market in Switzerland is facing significant challenges affecting both banks' lending practices and the repayment capacity of multiple borrowers. The tension between cautious supervisory measures and optimistic market analyzes will require a focus on financial stability and collateral in the coming period.