Elizabeth Bagwell,  Saturday, 16 November 2013

 

This article is part of a series of 10 articles about buying property in Switzerland. The other articles in the series cover the following topics:

Property Buying Guide
Can foreigners buy property in Switzerland
Finding the Right Location
Understanding Swiss property types
Finding an estate agent
Buying Process
Documents
Costs
Property Taxes

How much can you borrow?

Your monthly income should be at least 3 times the monthly loan repayments. Loan repayments are typically calculated to include interest and charges, raising the monthly income required. Using other assets, such as a Swiss pension, to offset mortgage interest costs is common, and may increase the amount you can borrow. It's important to be aware that these assets are used as collateral, and may be forfeit if you do not repay the loan.

Borrowing to cover costs

Extending a mortgage to cover purchase costs or planned renovation work is uncommon in Switzerland, but may be possible. Transaction costs for the buyer are typically 5-8%, so including that sum in your mortgage can be an attractive proposition. However, should this be done, it's important to note that the deposit required will be higher. For example, if you were seeking a mortgage on 108% of the property value, you would have to pay a deposit of 20% on the total sum.

Minimum deposit

A minimum deposit of 20% of the purchase price or total loan amount is usually required. Of this, 10% must be put down in cash and the remaining 10% can be funded through other means, such as providing a pension as collateral.

Typically, only assets in Switzerland can be used as collateral, i.e. you can use a Swiss pension but not one from another nation. The value of the pension fund must match or outweigh the sum for which it is being used as collateral, and the property thus funded must be the pension holder's primary residence, which means that unless you've lived and worked in Switzerland for a decade or more, this is unlikely to be a useful option.

Lower deposits and 100% mortgages are very rare or non-existent in Switzerland. Although the Swiss property market has remained strong throughout the financial crisis, the federal government has been concerned by events on the world stage, and strengthened regulations to avoid such a disaster. The main concerns affecting mortgages are that rising prices may lead to a housing bubble and that low mortgage rates may encourage people to take on loans they cannot later repay.

Repayment periods

All mortgages in Switzerland must include a repayment plan. Interest-only mortgages are very rare or non-existent. However, the repayment period is complicated slightly by the fact that each Swiss mortgage is typically 2 mortgages: one with an indefinite repayment period, the other which must be repaid relatively rapidly.

The indefinite mortgage covers 60% of the purchase price, while the shorter mortgage covers the remaining gap between this value and the total mortgage value. This means that if you put down a 40% deposit, you will typically only have one, indefinite, mortgage. However, if you put down the minimum deposit, 20%, then you will have a second mortgage to cover the 20% of the purchase price not covered by the indefinite mortgage or your deposit.

The shorter mortgage must typically be repaid either within 15 years or by your retirement age, whichever comes sooner. It will usually have an interest rate 1% higher than that for the primary mortgage.

Interest rates

Mortgage interest rates in Switzerland are currently low. The historical long-term average rate is 4-5%, and this is often used as a sample rate when assessing loan applications. As Switzerland has low inflation and a stable economy, interest rates are expected to remain fairly stable.

Sample mortgage calculation

Guideline interest rates are available from the and you can find mortgage calculators online to give you an estimate of the figures involved : and

Choosing a lender

Mortgage brokers are uncommon and expensive in Switzerland, so expect to do the legwork yourself to get the best deal. If you are a non-resident non- Swiss buyer, your estate agent may suggest a lender who caters to your particular situation. However, even in this case you should investigate other options.

Lenders are almost always banks. Switzerland has a high percentage of foreign residents, as well as four national languages, so it's possible to find someone at most banks who speaks English or any other major European language.

There are several banks which have branches throughout the country, such as UBS and Credit Suisse. Each canton also has its own bank, however you typically have to be resident in the canton in order to use its services. Major multinational banks are rarely seen on Swiss high streets, although they do have a presence in the country. Private banks may provide loans to high net worth individuals.

Mortgage application

Expect to provide significant amounts of information as part of your mortgage application, particularly if you are a non-resident non-Swiss buyer. Unless you choose a lender who specialises in non-resident mortgages, you can expect to have to negotiate as to which documents will be required as in any situation, the Swiss bureaucracy will typically demand at least one that only exists in Switzerland. Broadly, you should expect to provide information about yourself including:

Passport
Visa (if resident)
License to purchase (if non-resident)
Proof of income / salary
Tax return
Document indicating you do not have criminal convictions or have defaulted on debts

You will also have to provide details of the property, including:

Extract from the Swiss land registry
Property description, such as floor plan and photo
Insurance certificate

These are usually available from the seller. If you are applying for a mortgage with funds for building work, or buying a property off plan, details of the work to be done must be provided. For investment properties, a rent schedule must be included.