Finma sounds the alarm: Banks are too lax in granting mortgages

Banks in Switzerland are granting mortgages too easily. And they tend to interpret their own guidelines loosely. This is the conclusion of the Swiss Financial Market Supervisory Authority (FINMA). This particularly applies to mortgage affordability criteria.

As is well known, the cost of a home calculated by the bank may not exceed one-third of the gross disposable income. This is intended to ensure that homeowners can still pay their mortgages even if interest rates change. FINMA is now advising banks to lower the maximum loan amount for properties that are rented out and simultaneously increase the repayment requirements for borrowers.

Finma's warning is not new. For years, it has considered a real estate crisis one of the greatest risks to the financial center. In 2024, it conducted an inspection of banks and insurance companies. The inspection revealed that many banks tend to set loose affordability guidelines in their internal policies, the regulator wrote in a statement.

FINMA is particularly critical of the high number of exceptions banks make when granting mortgages. This particularly affects cantonal and regional banks, which generate the majority of their income from mortgage lending. These so-called "exception to policy" transactions mean that at least one of the mandatory conditions for granting a loan is not met.

This includes, for example, banks increasing mortgages on real estate, thereby increasing the loan-to-value ratio, or counting financial resources as equity that strictly speaking are not included, such as loans from relatives. If banks grant mortgages outside their own terms, they must justify them and document them specifically.

If FINMA identifies increased risks at a financial institution, it can impose capital adequacy surcharges on the bank. This has already been done in the past, the regulator added.

More to follow.