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Residential investment properties: Capital Adequacy Ordinance vs. self-regulation

Residential investment properties: Capital Adequacy Ordinance vs. self-regulation

The Swiss Bankers Association (SBA) rejects the tightening of the Capital Adequacy Ordinance (CAO) as it relates to “residential investment properties”. By adjusting self-regulation, the sector aims to make a targeted and effective contribution to an easing of the market. The SBA has submitted a corresponding proposal to FINMA for approval.

The SBA today published its position vis-à-vis changes to the CAO. In this statement, the SBA clearly speaks out against the increase of the risk weights for residential investment properties with a loan-to-value ratio of above two-thirds of the market value proposed by the authorities. Because “Basel III Final” will enter into force in the next few years, the SBA considers the implementation of this kind of “intermediate step” with such far-reaching implications to be incommensurate.


The sector is, however, prepared to contribute to the further stabilisation of the residential investment property market through an adjustment to self-regulation. The SBA has been in a constructive dialogue with the State Secretariat for International Finance, FINMA and the Swiss National Bank about this matter for some time. It has now presented FINMA with a corresponding proposal for approval as a binding minimum standard. The proposal aims to increase the down payment to be paid by the borrower and shorten the period for repayment of the mortgage when it comes to financing investment properties. The following concrete measures are envisaged:

  • For mortgages on investment properties, the minimum down payment is now to be 25% of the lending value (currently 10%). Any difference between a higher acquisition price and lower lending value is to be financed entirely with the borrower’s own funds (“Lower of cost or market” principle).
  • For investment properties, the mortgage is now to be amortised to two-thirds of the lending value of the property within maximum 10 years (currently 15 years).

The proposed revision of the guidelines on minimum requirements for mortgage financing would “by design” have a more targeted impact than the increase of the risk weights envisaged by the authorities, in particular because both of these instruments focus directly on the demand side.


Considering the greater effectiveness of self-regulation, the SBA therefore assumes that the authorities – as already announced in the press release dated 5 April 2019 – will dispense with the introduction of the CAO measures and give preference to the self-regulation of the sector.


FINMA is expected to reach a decision on the SBA proposal by the end of August. If it is approved, the stricter requirements would come into force on 1 January 2020.