The bank Raiffeisen has dropped its attempt to reduce minimum deposit requirements for home loans, according to RTS. Last autumn, it unveiled plans to reduce loan deposit requirements. However, last week, the bank announced that FINMA, Switzerland’s financial regulator, was opposed to the idea.
FINMA sets guidelines for mortgage lending in Switzerland which banks follow.
Anyone wishing to use mortgage finance to purchase a home must meet three requirements. First, they must come up with a 20% deposit, of which only half may come from second pillar pension funds. Next, gross earnings must exceed three times the cost of servicing the loan and upkeep of the house. For this calculation, interest is assumed to be 5% of the amount borrowed and maintenance to be 1% of the purchase price. In addition, loan repayments must reduce the loan value by at least one third over 15 years. Finally, if the property is valued at less than the purchase price, the buyer must fund the difference with their own funds.
Raiffeisen, which has 17% of the Swiss mortgage market, thinks lending rules should be loosened, to better reflect the current mortgage market, and to increase access to home loans. Speaking to RTS, Patrik Gisel, a director at Raiffeisen, said that a political debate on this issue should begin. Mortgage rates have fallen, other rates are negative, and this has not been passed on to the customer. This is not right, he said.
FINMA is not convinced that lending rules should be loosened. Tobias Lux, FINMA spokesperson, said: “Risk of overheating, which has existed for years, still exists. For this reason it is necessary that the rules related to the manageable cost of loan servicing, collateral and repayment, be respected.”
Zeynep Ersan-Berdoz, editor of Bon à Savoir, a consumer watchdog, told RTS that she thinks the 5% rate used for calculating loan affordability is out of step with the market. She hopes that one day Raiffeisen’s attempts will deliver change.