Buying your main home: how do you lay the right foundations for successful financing?

Mortgage

Buying your main home is a significant step, a symbol of stability and an investment in the future. It does, however, call for rigorous preparation, not least on the financing side.

Understanding financing requirements in Switzerland

Personal contribution: a minimum of 20%

In Switzerland, buying a property generally requires a personal contribution of at least 20% of the purchase price. For example, for a house costing CHF 1'000'000, a contribution of CHF 200'000 is needed.

What counts as own funds

Own funds can come from a range of sources:

Personal savings: current or savings accounts.
Investments: securities or other liquid assets.
Pension provision: 3rd pillar assets and, under conditions, 2nd pillar assets.
Family support: advances on inheritance or gifts.

It is important to note that, as a rule, at least 10% of the purchase price must come from "hard" own funds, meaning funds that do not come from occupational pension provision.

Assessing your financial capacity

Monthly charges to take into account

Swiss financial institutions consider that housing-related charges should not exceed one third of gross annual income. Those charges include:

Mortgage interest: calculated on an indicative rate of 5%.
Amortisation: repayment of the capital borrowed.
Maintenance costs: estimated at around 1% of the value of the property per year.

A concrete example:

For a property worth CHF 1'000'000, with mortgage financing of CHF 800'000, annual charges could come to around CHF 46'400. A gross annual income of at least CHF 180'000 would therefore be recommended to keep the finances soundly balanced.

Choosing the right type of mortgage

Fixed-rate mortgage

The interest rate stays constant for the whole term of the contract, making your charges predictable.

Variable-rate mortgage

The interest rate can move with the market, which can be an advantage when rates are falling, but also carries risk if rates rise.

SARON mortgage

Based on the overnight rate of the Swiss money market, it offers an alternative to traditional mortgages, with rates that are generally lower but more volatile.

Anticipating the additional costs

Beyond the purchase price, other costs have to be taken into account:

Notary and registration fees: varying by canton, they can represent between 3% and 5% of the purchase price.
Bank arrangement fees: linked to setting up the mortgage.
Insurance: building insurance, mortgage-linked life cover, and so on.

Conclusion

Buying a main home in Switzerland is an ambitious project that calls for careful preparation. By understanding the financing requirements, assessing your financial capacity properly and anticipating the additional costs, you can lay solid foundations for a successful investment.