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The Swiss National Bank is rowing in behind government plans to curb exuberance in residential investment property, according to its financial stability report.

“The sustainability of current mortgage lending policy in the residential investment property segment is a matter of concern,” the SNB said in the report, published on Thursday. “The risk of substantial price corrections in the future remains particularly high.”

In response to the SNB’s repeated warnings the sector was at risk of a correction, the government has suggested increasing the risk weights for loan tranches that exceed two-thirds of a property’s lending value. The banking association is considering lowering the loan-to-value ratio and shortening the amortization time on loans.

Switzerland’s property market has experienced a strong increase over the past decade, with demand fueled by the central banks’ exceptionally low interest rates. The SNB noted in the report that the profitability of domestically focused banks, as measured by the return on assets, had decreased.

Separately, the Swiss government on Thursday warned of “simmering imbalances” in real estate, citing it as an economic risk in its quarterly forecast on Swiss growth.

To contact the reporter on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Zoe Schneeweiss

©2019 Bloomberg L.P.

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