Featured Product

    FINMA on Adjusted Rule on Minimum Mortgage Financing Requirements

    August 28, 2019

    FINMA recognizes the adjusted self-regulation by the Swiss Bankers Association (SBA) in the area of mortgage lending for investment properties as a binding minimum standard. The changes will tighten the requirements for the loan-to-value ratio and the amortization of mortgage loans for investment properties. The tightened rules apply to new borrowers, but not to the existing loans or the existing standards related to owner-occupied residential property. The rules will come into force on January 01, 2020.

    The self-regulation now requires borrowers to provide a minimum down payment of at least a quarter of the loan-to-value ratio, instead of the current 10%. The lower of cost of market principle continues to apply, whereby any difference between a higher acquisition price and lower loan-to-value ratio is to be financed entirely with the own funds of the borrower. In addition, the mortgage is now to be amortized to two-third of the loan-to-value ratio of the property within a maximum of 10 years (currently 15 years). 

    FINMA has been drawing attention to signs of overheating in the residential investment property for some time. FINMA intervenes when individual institutions take on excessive risks, but such measures are always backward-looking and only apply to individual banks. These measures, however, only have a limited impact on the general risk situation across the market. Therefore, FINMA had demanded a change in regulation that would curb the overall demand for particularly risky mortgage loans for investment properties. For this reason, FINMA welcomes the adjustments of SBA to its minimum standards in the area of mortgage lending for investment properties. FINMA will also adopt the new provisions in its capital requirements for the insurance sector, in an effort to prevent distortions of competition.

    The definition of investment property, as set out in the revised self-regulation of SBA, does not expressly include the buy-to-let segment. This segment makes up nearly a quarter of all loans granted by banks for residential investment properties. FINMA takes the view that this segment ought to be treated in the same way due to its risk potential. The effectiveness of the tightened self-regulation is limited due to the exclusion of mortgages for buy-to-let properties. FINMA is, therefore, recommending that banks voluntarily also apply the stricter capital and amortization requirements to loans for buy-to-let properties. FINMA will continue to monitor this sector closely as part of its supervisory work and will, where necessary, take measures aimed at individual institutions.

     

    Related Link: Press Release

    Effective Date: January 01, 2020

    Keywords: Europe, Switzerland, Banking, Insurance, Capital Requirements, Amortization Requirements, Swiss Bankers Association, Mortgage Lending, LTV, LVR Restrictions, Credit Risk, FINMA

    Featured Experts
    Related Articles
    News

    EBA Publishes Phase 2 of Technical Package on Reporting Framework 2.10

    EBA published phase 2 of the technical package on the reporting framework 2.10, providing the technical tools and specifications for implementation of EBA reporting requirements.

    July 10, 2020 WebPage Regulatory News
    News

    FASB Proposes to Delay Implementation of Insurance Contracts Standard

    FASB issued a proposed Accounting Standards Update that would grant insurance companies, adversely affected by the COVID-19 pandemic, an additional year to implement the Accounting Standards Update No. 2018-12 on targeted improvements to accounting for long-duration insurance contracts, or LDTI (Topic 944).

    July 09, 2020 WebPage Regulatory News
    News

    APRA Updates Regulatory Approach to Loan Deferrals Amid COVID Crisis

    APRA updated the regulatory approach for loans subject to repayment deferrals amid the COVID-19 crisis.

    July 09, 2020 WebPage Regulatory News
    News

    BCBS and FSB Set Out Recommendations for Benchmark Transition

    BCBS and FSB published a report on supervisory issues associated with benchmark transition.

    July 09, 2020 WebPage Regulatory News
    News

    IAIS Sets Out Recommendations for Benchmark Transition for Insurers

    IAIS published a report on supervisory issues associated with benchmark transition from an insurance perspective.

    July 09, 2020 WebPage Regulatory News
    News

    ESMA Updates Reporting Manual on European Single Electronic Format

    ESMA updated the reporting manual on the European Single Electronic Format (ESEF).

    July 09, 2020 WebPage Regulatory News
    News

    EBA Calls on Resolution Authorities to Consider Impact of COVID Crisis

    EBA published a statement on resolution planning in light of the COVID-19 pandemic.

    July 09, 2020 WebPage Regulatory News
    News

    BCBS Finalizes Revisions to Credit Valuation Adjustment Risk Framework

    BCBS Finalizes Revisions to Credit Valuation Adjustment Risk Framework

    July 08, 2020 WebPage Regulatory News
    News

    ECB Guideline on Materiality Threshold for Credit Obligations Past Due

    ECB published a guideline (2020/97), in the Official Journal of European Union, on the definition of materiality threshold for credit obligations past due for less significant institutions.

    July 08, 2020 WebPage Regulatory News
    News

    FED Temporarily Revises FR Y-14 With Respect to PPP and CARES Act

    FED temporarily revised the capital assessments and stress testing reports (FR Y-14A/Q/M) to implement the changes in response to the COVID-19 pandemic.

    July 08, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5458