Bankers Association adjusts self-regulation for mortgage financing

Basel, June 24, 2014 At a meeting yesterday, the Board of Directors of the Swiss Bankers Association (SBA) resolved to amend two guidelines with effect on the mortgage market. The key measures are: the shortening of the amortisation period from 20 to 15 years, changes to the applicability of second incomes in the context of the assessment of financial sustainability, and the introduction of the “lower of cost or market” principle for the evaluation of mortgages. With these measures, the SBA is making a significant contribution to the cooling down of the real estate and mortgage markets. In a next step, the SBA will submit the revision of the self-regulation to FINMA for approval as the minimum standard.

The Swiss Bankers Association (SBA) is revising its self-regulation in the mortgage segment, that is, the guidelines followed by banks for mortgage financing. In concrete terms, the SBA will adjust the guidelines for examining, evaluating and settling mortgage-backed loans as well as the guidelines relating to the minimum requirements for mortgage financing in the following key areas, in addition to others:

  • The amortisation period for the repayment of one-third of the lending value of the property will be shortened from the current 20 years to 15 years, and the amortisation must be effected in regular tranches (linear). This amendment does not apply to existing mortgages or to a new regulation of an existing contract (i.e. extensions on existing mortgages).
  • With regard to the financing of real estate acquisitions or the transfer of ownership, the “lower of cost or market” principle applies to the evaluation. Therefore, for the lending value, the lower of the market value or purchase price is the determining factor.
  • In the context of the evaluation of financial sustainability, secondary incomes are generally only applicable in the case of joint and several liability.
  • The SBA is also taking advantage of the revision in order to make a number of small or editorial changes and updates.

These measures will contribute to a calming and stabilisation of potential hotspots in the real estate market. In the view of the SBA, it is very important that these measures are now given sufficient time in order for the effects to take hold. The SBA therefore assumes that for the time being, no additional measures will be introduced on the part of the government.

Next steps

In a next step, the SBA will submit the revision of the self-regulation to FINMA for approval as the minimum standard. If the revision is approved, the amended self-regulation will subsequently come into effect.