Equity in real estate transactions in Switzerland

In Switzerland, purchasing a property requires equity, which is your personal contribution to the financing.

The FINMA, the supervisory authority regulating banks, has issued guidelines through the Swiss Bankers Association (SBA) to help banks avoid over-indebtedness among their clients.

What is equity? 

Equity refers to the money you personally contribute to the purchase of your property. It complements the amount borrowed from the bank. 

Equity requirements for acquiring a primary residence/h2>

To purchase a primary residence, you need a minimum of 20% equity, of which at least 10% of the property's collateral value cannot come from second-pillar pension funds (advance withdrawal and/or pledge).

For example, to buy an apartment worth CHF 1 million, you will need to contribute CHF 200,000 in equity. Of these 20%, 10% must come from your personal savings, such as:

• Bank account balances
• Pledging of securities (in the form of a Lombard Loan)
• Pillar 3a retirement savings (withdrawal or pledge)
• Pledging the surrender value of insurance policies
• A loan from a close relative (spouse, parents, grandparents, siblings, aunts/uncles, etc.), provided the lender confirms in writing that this advance is interest-free and requires no amortization
• Gifts

The remaining 10% can come from your second-pillar pension fund assets (retirement savings), based on the amount available for homeownership as indicated in your pension certificate.

More or less equity?

Investing more than 20% in equity can reduce the amount you need to borrow and, consequently, the interest you will pay. It may also allow you to negotiate better terms with the bank.

Conversely, using less equity might be a choice to retain more liquidity for other projects. However, this means your mortgage will be higher, increasing interest costs and monthly repayments. On the other hand, it could also lead to a higher potential tax deduction.

In conclusion Equity is a critical component of your real estate project in Switzerland. Understanding the requirements and the available options to build up your equity can make it easier to access homeownership while preserving your financial stability. Before making a decision, consult your advisor to find the best strategy for your personal situation.