The Swiss Financial Market Supervisory Authority (FINMA) has published guidance on risks in the real estate and mortgage markets, summarising supervisory findings and setting out its expectations for meeting regulatory requirements in mortgage lending. The guidance is aimed primarily at banks, but FINMA notes that other supervised institutions such as insurance companies are exposed to similar risks and will be assessed against the same supervisory principles. FINMA reports that its work at multiple banks indicates principles-based mortgage regulation is being exploited, particularly in affordability assessments and valuation practices, suggesting a possible need for regulatory improvement. It observed that many banks set loose affordability criteria in internal policies and grant a high proportion of loans as exceptions to policy (ETP), and it stresses the need to systematically limit, record and appropriately monitor higher-risk lending; the guidance includes examples of affordability criteria FINMA considers sustainable, designed to withstand interest rate increases over several years. On valuation, FINMA identified qualitative weaknesses such as the use of lower capitalisation rates for investment properties; it reiterates that FINMA-recognised industry self-regulation is a minimum standard and that institutions must document valuation methods and statistical bases and validate valuation models annually. FINMA also highlights reputational risks in lending and recommends these be systematically recorded, limited and monitored in a way that is comprehensible to knowledgeable third parties, for example within the loan application process. FINMA expects banks to comply with self-regulatory minimum standards on loan-to-value ratios and amortisation and to set segment-specific internal requirements aligned to risk; given the current risk environment, it advises lower loan-to-value limits and higher amortisation requirements for investment properties, including buy-to-let. The guidance draws on FINMA’s mortgage supervisory activities, including a 2024 survey of underwriting criteria at 27 banks and 18 insurance companies, six on-site inspections focused on commercial mortgages, stress tests at 13 banks, and prior use of institution-specific capital add-ons for elevated real estate and mortgage risks.

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