The Swiss mortgage market has become too big to fail, the head of the country’s financial regulator warned today, and it is unclear whether Switzerland’s booming property market can manage a “soft landing”.

Real estate prices and mortgage lending have surged in Switzerland in recent years, a by-product of ultra-low interest rates set by the Swiss central bank to lower the appeal of the franc. That has fuelled concern a housing bubble is building, as mortgages grow faster than the economy. It was still too early to say just how serious a housing slowdown would be for the country’s economy, Finma chief executive Mark Branson said at the Swiss International Finance Forum in Berne.

“The mortgage market is growing considerably faster than GDP is growing,” Branson said. “This growth has stabilised but has not receded yet, so we cannot really be sure there will be a soft landing in the real estate market.” But the Finma boss also said Switzerland’s well-capitalised banking system was in a better position to weather a downturn and absorb losses than it was 20 years ago. The size of Switzerland’s mortgage market rivals the balance sheets of the country’s two biggest banks, UBS and Credit Suisse, Mr Branson said.

As a result, the market is now systemically important to Switzerland’s economy. “When we say these two banks are too big to fail, then actually the mortgage market is also too big to fail in Switzerland,” Mr Branson said.

Reuters