* OECD says concerned a housing price bubble may develop
* SNB should take measures to curb mortgage lending
* Swiss should limit tax deductibility of interest expenses
ZURICH, Jan 24 To avoid a housing bubble
Switzerland should take steps to curb excessive mortgage
lending, including phasing out tax allowances on interest
expenses, the Organisation for Economic Co-operation and
Development said on Tuesday.
Mortgage lending in Switzerland has expanded rapidly in
recent years as ultra-low interest rates since March 2009 have
The OECD, in its latest economic survey of Switzerland, said
the Swiss National Bank (SNB) was right to maintain an
expansionary monetary policy as inflation is expected to remain
close to zero until 2013. But it should look to rein in credit,
"Since interest rates may therefore remain unusually low and
liquidity abundant it is important that macroprudential measures
are taken in parallel to avoid excessive mortgage lending," the
The SNB warned last June there were signs of overheating in
the property markets in Zurich and Geneva and has said it is
keeping a close eye on the housing and mortgage markets. It has
also warned that low interest rates might tempt banks to loosen
their lending standards.
The UBS index of Swiss residential real estate rose in the
third-quarter of 2011, according to the latest data, but
remained in the boom phase and not in a bubble.
The OECD said high levels of household debt also risked
destabilising the Swiss financial system and the country should
look to phase out a provision that allows households to deduct
interest expenses from their taxable personable income.
"By giving incentives to household indebtedness, the Swiss
tax regime can potentially aggravate any future period of
financial stability," the OECD said.
Mortgages comprised 18.7 percent of household liabilities in
2010, up from 17.8 percent in 2006, according to the latest SNB
The government wants banks to take measures to regulate the
real estate market and is eyeing measures, including improving
the SNB's access to bank information and countercyclical buffers
for banks, to shield them from big mortgage writedowns.
Switzerland should also consider shifting the tax burden
away from personal income towards consumption to boost growth,
by raising the current standard 8 percent value-added tax (VAT)
rate and considering applying it to financial services, the OECD
(Reporting by Caroline Copley; Editing by Susan Fenton)