Mortgage in Switzerland: understanding the financing criteria for your primary or secondary residence.

When considering financing the purchase of a primary or secondary residence in Switzerland, two fundamental criteria come into play:

1. The value of the property
2. Your financial capacity as a borrower

These criteria are not arbitrary. They are defined by clear guidelines issued by the Swiss Bankers Association (SBA), under the supervision of FINMA. These standards aim to ensure a sustainable and prudent financing framework for both banks and their clients.

Key points of banking guidelines 

Swiss banks apply strict rules to assess the feasibility of any mortgage loan. These rules include:

• Calculating your financial capacity: The bank analyses whether you can manage the mortgage costs while adhering to predefined financial thresholds.
• Using a theoretical mortgage rate: This rate, generally higher than market rates, helps simulate your ability to withstand a potential increase in interest rates.

Why a theoretical rate?

While you might be tempted to calculate your monthly payments based on the current interest rates—often very attractive—banks use a theoretical rate for their internal evaluations. It is often set around 5%, to which the following are added:

• Amortisation (if 2nd mortgage tier) to repay part of the loan.
• Theoretical maintenance costs, calculated at approximately 1% of the property’s value.

These assumptions ensure that the bank can guarantee your financing remains viable, even in a rising interest rate environment.

A concrete example to understand better

Let’s consider a client:

• Situation: Single, no children, with an annual income of CHF 120,000.
• Current status: Renting an apartment at CHF 2,500 per month.
• Project: Purchasing a property valued at CHF 1,250,000, with a mortgage financing of CHF 1,000,000.

The client might make a simple calculation, assuming the mortgage will cost around 1.5% annual interest (current market rate):

• Interest: CHF 15,000 per year (1.5% of CHF 1,000,000).
• Amortisation: Approximately CHF 10,000 per year (2nd tier mortgage over 15 years).

This totals CHF 25,000 per year, or about CHF 2,100 per month, which seems more advantageous than their current rent.

The bank’s evaluation: A different approach 

The bank, however, applies its theoretical rate of 5% to assess financial capacity:

• Theoretical interest: CHF 50,000 per year (5% of CHF 1,000,000).
• Amortisation: Approximately CHF 10,000 per year (2nd tier over 15 years).
• Maintenance costs: CHF 12,500 per year (1% of CHF 1,250,000).

Total theoretical annual cost: CHF 72,500.

To be considered financially viable, this amount must not exceed around 33% of the client’s gross annual income, which is CHF 39,600 in this case. Here, the client significantly exceeds this threshold.

Despite having their own funds, the bank might refuse to finance this project.

Given the client’s actual income, their financial capacity would allow for a maximum mortgage loan of CHF 550,000.

Why turn to a private bank?

A private bank offers far more than a simple mortgage loan:

• Personalised analysis: Your financial situation and life goals are considered to find tailored solutions.
• Holistic advice: By integrating your mortgage into a global wealth strategy, you can optimise your assets, income, and even taxes.
• Access to alternative solutions: Depending on your profile, a private bank can explore suitable financing solutions or optimise the use of your 2nd pillar or other assets to strengthen your project.

Ready to take action?

Do you have a real estate project and wish to explore the most suitable financing options? Schedule an appointment with our experts for a personalised consultation. Together, we will define a tailored solution to help you achieve your ambitions.