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

    BIS Report Notes Existing Gaps in Climate Risk Data at Central Banks

    A Consultative Group on Risk Management (CGRM) at the Bank for International Settlements (BIS) published a report that examines incorporation of climate risks into the international reserve management framework.

    July 29, 2022 WebPage Regulatory News
    News

    EBA Publishes Multiple Regulatory Updates for Regulated Entities

    The European Banking Authority (EBA) published the final guidelines on liquidity requirements exemption for investment firms, updated version of its 5.2 filing rules document for supervisory reporting, and Single Rulebook Question and Answer (Q&A) updates in July 2022.

    July 29, 2022 WebPage Regulatory News
    News

    APRA Consults on Prudential Standard for Operational Risk

    The Australian Prudential Regulation Authority (APRA) is seeking comments, until October 21, 2022, on the introduction of CPS 230, which is the new cross-industry prudential standard on operational risk management.

    July 28, 2022 WebPage Regulatory News
    News

    EC Amends Rule on Securitizations; ESRB Updates Reciprocation Measures

    The European Commission published a Delegated Regulation 2022/1301 on the information to be provided in accordance with the simple, transparent, and standardized (STS) notification requirements for on-balance-sheet synthetic securitizations.

    July 27, 2022 WebPage Regulatory News
    News

    APRA Announces Revisions to Capital Framework for Banks

    The Australian Prudential Regulation Authority (APRA) is announced revisions to the capital framework for authorized deposit-taking institutions to implement the "unquestionably strong" capital ratios and the Basel III reforms.

    July 26, 2022 WebPage Regulatory News
    News

    EBA Examines Remuneration Data and Use of Large Exposure Exemptions

    The European Banking Authority (EBA) published a report that examines the use of certain exemptions included in the large exposures regime under the Capital Requirements Regulation (CRR).

    July 22, 2022 WebPage Regulatory News
    News

    UK Authorities Publish Discussion Paper on Critical Third Parties

    The Bank of England (BoE), the Prudential Regulation Authority (PRA), and the Financial Conduct Authority (FCA) published a joint discussion paper that sets out potential measures to oversee and strengthen the resilience of services provided by critical third parties to the financial sector in UK.

    July 22, 2022 WebPage Regulatory News
    News

    BoE Issues Update on Ongoing Data Transformation Program

    The Bank of England (BoE) issued a communication to firms to provide an update on the progress of the joint data transformation program—which is being led by BoE, the Financial Conduct Authority (FCA), and the industry—for the financial sector in UK.

    July 21, 2022 WebPage Regulatory News
    News

    EBA Issues Draft Methodology and Templates for 2023 Stress Tests

    The European Banking Authority (EBA) published the draft methodology, templates, and template guidance for the European Union-wide stress test in 2023.

    July 21, 2022 WebPage Regulatory News
    News

    EBA Issues SREP Guidelines and Standards for Investment Firms

    The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) jointly published the final guidelines on common procedures and methodologies for the supervisory review and evaluation process (SREP) for investment firms.

    July 21, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8407