Practical guide: The essential steps for obtaining a mortgage in Switzerland
In Switzerland, the realization of a real estate project will depend essentially on 3 parameters:
- Equity (personal contribution)
- Borrowing capacity (mortgage rate)
- Bank value of the property
These three parameters must be aligned between the start of the project and its final completion. It is therefore essential to understand in a little more detail each of these parameters in isolation, as well as their interdependencies.
1. Shareholders' equity
The amount of equity required can vary depending on the use of the property. For example, when buying a main residence, financial institutions generally accept a personal contribution of 20% of the bank value. To this must be added the acquisition costs (notary, transfer tax, setting up a schedule, etc.), generally calculated at 4.5% of the purchase price in the French-speaking cantons. In the case of investment properties, this breakdown is calculated in the same way. Secondary properties generally require higher personal contributions (between 30% and 45%, depending on the financial institution involved).
2. Expense ratio
In correlation with the equity required, financial institutions will then check your ability to support the loan your project requires. This calculation will be based on theoretical interest rates (around 5%), a possible amortization (if the mortgage exceeds 66% of the price of the property) and maintenance charges (between 0.5% and 1% of the bank valuation of the property). The total of these costs must not exceed 33% of your gross income for the purchase of your principal residence. In the case of a second home, the total of these costs must not exceed 33% of your gross income, plus the costs of your main home. Finally, for an investment property, the lending institutions will check whether the rents received cover the theoretical charges, and if not, whether you can provide a personal guarantor.
3. Bank valuation
This is an often overlooked aspect of the financing mechanism in Switzerland. The information and financing rules concerning equity contributions and the rate of charges always apply to the bank value of the property, which is not always equal to the market value. In other words, when the bank’s bank value is lower than the purchase value of a property, it’s up to the buyer to make up the difference from his or her own personal funds (excluding LPP and third pillar). In some cases, this may require additional equity capital, thus compromising the viability of the project.
In conclusion, to obtain a mortgage in Switzerland, it’s essential to understand the requirements in terms of equity, borrowing capacity and bank valuation. By preparing yourself properly and seeking out the best offers, you’ll be able to bring your real estate project to fruition successfully and with peace of mind. Don’t hesitate to consult experts in the field for advice tailored to your financial situation.
