On Mar. 27, SWI SBA updated self-regulation on mortgage lending.
SWI SBA confirmed it updated its two self-regulation regimes relating to mortgage lending as part of the implementation of final Basel III standards in Switzerland.
SWI FINMA said recognized the adjustments to the mortgage self-regulation regimes.
On the same day, SWI FINMA issued ordinances implementing Basel III, see #206530.
Guidelines
SWI SBA is responsible for 2 self-regulation regimes relating to mortgages, both of which are recognized by SWI FINMA as minimum standards under supervisory law.
These are the Guidelines on minimum requirements for mortgage loans and the Guidelines on assessing, valuing and processing loans secured against property.
The former govern borrower's use of own funds and set out specific limits with regard to amortization, are directly linked to the Capital Adequacy Ordinance (CAO).
Loans that comply with the guidelines are given a preferential, lower risk weighting.
The other guidelines contain qualitative requirements for banks' internal mortgage lending business processes, including lending policies, loan monitoring and reporting.
Guidelines are updated in line with Swiss implementation of final aspects of Basel III.
Minimum Requirements Changes
Main change is lifting of stricter rules introduced in 2019 for investment properties, so the same rules will apply to mortgage loans for all types of property again in future.
Reason for this is that risk weightings for buy-to-let mortgages on residential properties will be significantly higher under Basel III, so more expensive for banks.
Other changes include more precisely defined scope of application (e.g. properties in SWI), clearer rules on the eligibility of loans from close family members as own funds.
Loans Secured Against Property Changes
Scope extended to include housing cooperatives, ensuring that the corresponding loans can also benefit from preferential risk weightings under final Basel III implementation.
The requirement for an independent valuation is clarified, and a new duty to conduct periodic reassessments of creditworthiness and affordability are introduced.
SWI FINMA Recognition
FINMA recognized adjusted guidelines/self-regulation regimes, will monitor application of the new minimum standards, take measures at individual institutions where needed.
Regarding the removal of 2019 stricter rules for investment properties, FINMA pointed out that the self-regulation only sets out the minimum standards in this area.
Recommended that banks do not increase lending limits for investment properties, including loans for buy-to-let properties, will monitor impact of amended standards.
And make use of its supervisory tools on a case-by-case basis if necessary.
Welcomed the adjustments to guidelines on loans secured against property, but sees increased affordability risks, warned on banks overestimating affordability of loans.
And said that many banks grant too many loans outside their own lending criteria.
FINMA will continue to keep an eye on application of the principles-based regulation in this area and, depending on how risks develop, will consider rule-based regulation.
Effectiveness
Both updated sets of guidelines will enter into force at same time as implementation of final Basel III aspects i.e. with the revised CAO and the 5 new SWI FINMA ordinances.
SWI GVT has decided this will take place on Jan. 1, 2025.
