Both the federal financial market supervisor FINMA and the Swiss National Bank have long pushed Swiss banks to adopt tougher requirements for mortgage applicants. Without these measures, the Swiss real estate market may over-inflate.
Real estate experts also advise homebuyers to avoid purchasing property at current prices without properly assessing its real value.
Today, the Swiss Banking Association (SBA) announced the adoption of a list of mortgage regulations which will be introduced as self-regulatory measures.
The new mortgage rules are aimed at calming the Swiss real estate market. Banks that choose not to follow these rules must be able to provide assets equal to three times the amount in question.
The new rules specify the following minimum requirements:
- Tighter amortization requirements: Real estate owners with a second mortgage are now required to amortize that second mortgage in 15 years, rather than the previous 20 years. The amortization – or the repayment of a home loan – will begin immediately after the second home is mortgaged and must be repaid in equal instalments throughout the entire mortgage term. That means that paying off the mortgage ahead of schedule is no longer possible.
- Second income: A second earner’s income can only be taken into account if both earners share liability for the mortgage (as in a joint-mortgage, for example).
- Real estate valuation: Banks must now use the lower of a property’s purchase price and its actual market value when calculating the loan-to-value ratio (lowest value principle).