Engel & Völkers Licence Partner Ascona > Blog > The dream of owning a home – financing

The dream of owning a home – financing

In Switzerland, the majority of people still rent their homes. But the dream of owning a home continues unabated and with it the demand for flats and houses. Unfortunately, however, one question puts an end to this dream for many: how can we finance our dream of owning a home?  

In Switzerland, the financing of home ownership is strictly regulated. Few can afford the purchase price without borrowing money and must therefore take out a mortgage from a bank or insurance company. But how do you work out whether the bank will finance your dream property? This is very easy if you understand the two pillars of home financing.

1. Deposit: savings, inheritance or pension fund

A deposit of at least 20% is always required when purchasing a property. If a property costs CHF 1 million, you will need to have a 20% deposit – i.e. CHF 200,000. Although many may be discouraged by this figure, it can be broken down into two parts.

Half the deposit must come from your own cash assets. These include your accumulated savings, assets from your third pillar or an inheritance advance. The other half of the deposit can then be financed from your pension fund, provided the property will be your principal residence. So for a property costing CHF 1 million, you would only need to contribute CHF 100,000 from your accumulated savings or inheritance advance.

If you decide to finance your home using your  pension fund assets, you have two options:

  • You can withdraw the required capital from your pension fund. However, this will reduce your retirement benefit and possibly also your risk benefits. You will also have to pay tax on the capital you withdraw.
  • The other way of financing your property using pension fund assets is to mortgage these. You don’t take any money out of your pension pot, but simply increase your debt to your mortgage lender.

Contact your pension provider and bank in plenty of time to review these options.

2. Affordability

If you have a deposit of at least 20%, the mortgage affordability will now be calculated. This is based on the total income of all the purchasers – in the case of a married couple, for example, both their incomes are considered.

Banks and insurance companies can now lend up to 80% of the property value with two mortgages. 65% of the purchase price is financed with a first mortgage and the remaining 15% as a second mortgage. This second mortgage must be fully repaid (both interest and capital repayments) within 15 years. This is why income is important, because the mortgage lender has to ensure that you will be able to afford the mortgage interest and capital repayments.

The bank always uses a hypothetical interest rate of 5% for these calculations – regardless of the current interest rate. It also assumes additional housing costs of 1%. So for specific affordability, this total 6% cost should not exceed one third of your gross household income.

Are you unsure whether you meet the conditions for your dream property? Or would you like to know the maximum cost of your dream house on a non-binding basis? Our property experts will be happy to help. Just get in touch or visit your nearest Engel & Völkers shop – we’d be happy to help!

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