Swiss Government Takes Measures To Avoid Property Market Crash
News Posted On: 24 June 2014
Switzerland’s current household debts are skyrocketing. This is a matter of huge concern for the Swiss government as it could mean that the Swiss real estate market might be heading for a crash. So, the government is thinking on a new set of measures to offset the housing market demand.
The IMF recently rang the warning bells on escalating global housing prices. The IMF also advised Switzerland to initiate an aggressive set of measures to dampen fresh mortgage demands. The recent housing prices and Swiss mortgage debt escalation is attributable to the Swiss bank’s intervention against a likely recession. The bank actually lowered the interest rates.
Mortgage debts and residential property prices reach alarming heights
Mortgage debts and residential property prices have reached an all time high in Switzerland. The Swiss government is worried that this trend could eventually lead to a crash, unless timely remedial measures are put into effect. Earlier, the central bank had taken a set of measures to make the Swiss franc less attractive by lowering the interest rates. It also took the step to curb the recessionary price. However, it led to the rising of residential property prices and mortgage debts.
Although there are no possible indications of a likely crash as of now, there is a likelihood of a danger if the current trend of expanding mortgage borrowing and residential property prices continues unabated.
In other words, a housing market bubble is distinctly heading towards the coming recession. This is not just in the Swiss market, but the global trend. Non-monetary policy measures to ward off this trend have been initiated around the world for the last two years. The focus of these measures has been to dampen inflationary trend in house prices combined with credit growth. It is expected that lenders and borrowers will be protected with these measures when interest rates begin to show an upward trend from the all-time current low levels.
Governmental bodies mitigate chances of potential property market crash
The government bodies throughout the world have taken or are taking steps to mitigate the chances of any further potential property market crashes. The Swiss government is already examining three likely measures to curb the credit growth and residential property price including tightening the mortgage feasibility criteria, narrowing down the lending limit, and mortgage credit needing faster amortization.
Other than the steps that the Swiss government has already taken, in yet another major decision, the government has asked the banks to hold extra capital in reserve. The 2 percent additional capital is to be held by the banks by the end of this month in their mortgage portfolios. These measures, however, according to analysts will make only a minor impact on overall demand because most of the Swiss mortgages are with the smaller domestic banks. As it is, these banks are well-capitalized already.
The alarm and caution demonstrated by the Swiss government is, however, quite in contrast to the thinking of the property groups and lenders. The second half of the last quarter, for instance, indicated that growth in mortgage lending has decelerated a little, while price growth slowed down to 4.3 percent. Yet at 110 percent of GDP, private residential mortgage debt is still a matter of concern.
Written by Les Calvert
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