In the owner-occupied housing market, the rate of growth in real estate prices attained levels last seen eight years ago, which was attributed to brisk demand coupled with a depleted level of supply in this sector. As incomes have remained stable, the gap between residential house prices and wages has increased even further. FINMA therefore continues to regard a potential correction on the real estate and mortgage market as one of six top risks.
The banks have responded to falling interest margins and increased competitive pressure by improving efficiency and, above all, by expanding volumes, including in the mortgage sector (+3.3% compared with the previous year). In the case of domestic mortgages, they maintained their market share of approximately 94%. The market share of insurance companies – for which limits in tied assets have a restrictive effect – decreased slightly to below 4%. Alongside the accelerated volume expansion, FINMA observed an increase in the affordability risks associated with the granting of new mortgages, particularly in the residential investment property sector.
On 1 January 2020 the Swiss Bankers Association introduced stricter self-regulation requirements on the maximum loan-to-value ratio for new financing loans for investment properties, not least as a result of the additional involvement of FINMA. This tightening has already led to a reduction in banks’ mortgage portfolio risks – including during the year under review. FINMA monitored compliance with the stricter requirements and took action in cases where banks had not adequately implemented these adjustments. Furthermore, FINMA strongly recommended that the stricter requirements should also be applied to the buy-to-let financing sub-segment, which is not officially covered by the self-regulation. During the course of implementing the final provisions of “Basel III”, FINMA also called for an improvement in the risk sensitivity of the capital requirements for mortgages.
FINMA utilised its regular supervisory instruments, such as on-site supervisory reviews and stress tests, in order to identify elevated risks affecting individual supervised institutions in connection with the real estate and mortgage market. The above two approaches prompted the institutions concerned to implement risk-mitigating measures in the areas of lending and risk management as well as in their internal directives. In this regard, FINMA has improved its data-driven supervisory techniques in the credit area through the addition of new monitoring tools. Besides the increased use of existing data sources, it also investigated the use of additional information on credit portfolios.
(From the Annual Report 2021)