Buying a property in Switzerland: How much can you afford?
The cost of your new home depends on how much money you have and earn. We’ll explain how to calculate the necessary equity and ensure the affordability of your mortgage.
Provide sufficient equity
Financial institutions typically do not lend the entire amount for the home purchase. They usually require 20% in equity. This can include traditional savings, securities, loans, or inheritance advances, as well as funds from the pension plan or the third pillar. In addition to the 20% for the property purchase, sufficient equity reserves should also be available, as there are additional costs such as purchase and notary fees involved in the property purchase.
There is also the risk that the valuation of a property, from the perspective of the financial institution, may be lower than the purchase price, meaning they may not be willing to finance 80% of the amount.
Ensure affordability
You must also factor in recurring annual costs. A general rule of thumb is that ongoing costs amount to 6% of the purchase price. This percentage applies if 20% of the equity is invested in the property. The 6% rule includes the mortgage interest, maintenance costs, and mortgage amortization. It is based on the average mortgage interest rates of recent years. The 6% rule does not account for the tax effects, which can vary depending on the canton.
According to another rule of thumb, the housing costs determined by the 6% rule should not exceed one-third of your income.
Example for a mortgage calculation
If Max Muster's monthly housing costs amount to CHF 3,300, his monthly income should be at least CHF 9,900. If Max Muster's income is lower, the mortgage lender may be skeptical about the financing and have concerns about the long-term affordability of the property for Max Muster.
- Purchase price: 660,000 = 100%
- Equity: 132,000 = 20%
- Annual housing costs: 39,600 = 6%
- Annual gross income (excluding 13th month salary): 118,800 = 18%
Factoring in risks
Even those who calculate carefully are still taking risks. If Max Muster's income decreases due to job loss or disability, he may no longer be able to cover the housing costs and could be forced to sell the property.
It’s uncertain whether he will be able to sell the property for the original purchase price or even at a profit. There may even be a loss, especially if, for example, the building's structure is poor, the location of the house is unfavorable, or if the property's maintenance has been neglected.
