5 tips for buying and financing your holiday home
Our advice on buying your holiday home.
Who has never dreamt of buying a "pied-à-terre" in the mountains or the countryside? Supposing that dream could finally come true today? The bank Piguet Galland is here to help you make it happen. What corresponds to a holiday home under Swiss law? What are the financing rules? What is the best investment strategy? Discover our practical advice on how to do your project a success.
Holiday homes in Switzerland: what does the law say?
A holiday home is a flat or house intended for personal use during vacations. It may not be used as your principal residence or place of work. It must be located in a different commune from your usual residence and cannot be intended solely for rental to third parties. A holiday home is also distinct from a secondary residence, which may be used for business purposes.
Your main home is where you live. A holiday home is intended for occasional stays and must be used as a holiday destination.
The federal LRS law, which came into force in 2016, prohibits the construction of any new holiday homes in Switzerland in municipalities that have exceeded the 20% quota in principle. So, despite some exceptions, finding out about the local market before considering your purchase is very important.
Advice on buying a holiday home: checklist
01. Choosing your holiday destination
As with any property purchase, the choice of location for your holiday home is priority number 1. Its potential is closely linked to its immediate surroundings. Remember to check the accessibility of your property: proximity to the main tourist attractions, public transport links, road access, nearby services, panoramic views, natural environment, etc.
02. Taking regulatory constraints into account
Before you buy your holiday home in Switzerland, make sure you find out about the provisions applicable to this type of purchase from the municipality or notary responsible for the sale. Regulations can vary from one city or canton to another.
Suppose you are considering buying a holiday home in a condominium. In that case, it is essential that you first consult the condominium regulations, the copies of the minutes of last three owners' annual general meetings, and check the related accounts, as well as the sum available in the renovation fund.
03. Make sure your project is viable
For your project to be financed, the purchase price, the running and maintenance costs of your holiday home must be viable and, therefore, not exceed a certain percentage of your income. The mortgage amortisation rules are more restrictive than those for your principal residence.
04. Think about reselling your property in the future
The holiday homes which sell best are those located in the most attractive or touristic areas. They should be well maintained so the future buyer does not have to undertake renovation work. Last but not least, if there is a high potential for conversion and extension, even better!
05. Are you prepared to accept a property with works necessary?
Thinking of buying an old property as a holiday home? Here's a checklist of things to look out for:
- The potential obsolescence of electrical installations and the work required to bring them up to standard.
- The state of the plumbing or pipes and the search for any traces of rising damp or past leaks.
- Is the roof watertight? Is it properly insulated? When was the roof last repaired?
- Does the home's insulation comply with standards? Is it insulated from the inside or outside?
- Does the property meet current energy standards?
Financing your holiday home: the basic rules
Your private bank can help you buy your holiday home. We're there every step of the way, from finding the finance you need to closing the deal.
Our institution can finance a residence for up to 66% of the property's value, compared with 80% for your main residence. Therefore, you need more equity if you want to invest in a holiday home.
In practice, the amount of finance granted is calculated based on a theoretical mortgage rate of 5% per annum, around 1.5% annual amortisation, and 1% of the purchase price for maintenance costs.
You should also know you cannot use your occupational pension or Pillar 3a funds to buy a holiday home. These funds and the associated tax benefits are reserved for your principal residence.
Finally, as your holiday home is located outside your canton of residence, you must file a new tax return and pay property tax. Mortgage interest is deductible, as are maintenance costs.
Financing a holiday home: don't forget the maintenance costs
Buying a holiday home in Switzerland involves additional costs: condominium fees based on your thousandths or maintenance costs for a chalet, not to mention water, electricity, and insurance, all of which need to be factored into your budget.
Co-ownership charges
The condominium charges you pay will be used to finance common expenses, such as lift maintenance or the employment of a caretaker, and will also be paid into a renovation fund for future work on the building.
Buying a holiday home: what are the tax implications?
The acquisition of a holiday home must be declared on the tax return attached to your main residence. Its tax value will then be declared as wealth. Income from the rental of the property or its rental value is then taxed as income.
As a reminder, maintenance costs and mortgage interest can be deducted. Some cantons allow tax deductions for wear and tear caused by letting out your holiday home.
How can I finance a holiday home abroad?
Swiss banks generally do not finance the purchase of a holiday home abroad.
If you plan to invest beyond our borders, on the Mediterranean coast, for example, you will need sufficient capital to invest using your savings or via a leveraged loan.
You can also use a local bank, but the conditions for obtaining a loan will certainly differ from those in Switzerland.
Choose the right strategy for investing in your holiday home
As with the purchase of your principal residence, you need to assess the appropriateness of your financing strategy in light of your personal and financial situation. Our experts can help you find the right solution.
The financing options available to you depend on your project:
- Do you want to invest for a while and then sell your property when prices rise?
- Do you want to invest in a long-term property for your retirement?
- What risks are you prepared to take with this financing?
The bank Piguet Galland offers advice on buying a holiday home and various financing solutions. To help you realise this important life project, our bank has a team of experts to advise you on your assets, financing, and investments. Don't hesitate to contact us to find out more.
Holiday home
Planning a holiday home? Whether you want to hit the slopes or treat yourself to a piece of paradise by the lake, our 360 Series will guide you through all the key stages in making your property dreams come true.
