(Bloomberg) —
Switzerland took action to put the brakes on its surging property market amid warnings that housing is overvalued and risks of a crash are growing.
Regulators and the government agreed Wednesday to reactivate a buffer and ordered banks to hold additional capital against the threats posed by the real-estate boom.
The rule, which applies from Sept. 30, amounts to an extra 2.5% of risk-weighted assets linked to domestic residential mortgages. That’s higher than the 2% that was in place before the buffer was suspended early in the coronavirus outbreak.
A global real-estate boom, helped by huge fiscal and monetary stimulus, saw countries record surging property prices during the pandemic. The Swiss National Bank has repeatedly warned of the danger of a correction in the country’s market as prices rise and affordability becomes stretched. It’s also said housing is overvalued, something it repeated on Wednesday.
“Both the volume of mortgage lending and prices for residential property have risen more strongly than can be explained by fundamental factors such as rents and income,” the SNB said in a statement.
Switzerland’s countercyclical capital buffer was introduced as part of the reforms to make banks more resilient in the wake of the 2008 financial crisis. It was in force from February 2013 to March 2020, when authorities eased rules to ensure banks continued lending to businesses and households hit by the coronavirus pandemic.
The country’s financial watchdog Finma said it supported the reintroduction of the buffer.
The volume of mortgages is “accelerating — despite the coronavirus pandemic,” said Finma’s Jan Bloechliger. “The institutions are taking increasingly higher risks in mortgage lending.”
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