Swiss real estate - 2020 in review
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Switzerland: obtaining a mortgage for nationals, foreign residents and non-residents
In Switzerland the purchase of a house or apartment inevitably entails obtaining a mortgage from a bank. It is a crucial stage in the successful completion of a property purchase project. Do you shortly plan to purchase a property on Swiss soil?
Undoubtedly you have numerous questions on the process to be followed to obtain a mortgage. Thus, we offer you a through description of the procedures to undertaken and the specificities for resident and non-resident foreign people in Switzerland.
What is a mortgage?
A mortgage is a loan undertaken over the long term with the objective of financing the purchase of an apartment or a house. The loan is provided to the future property owner by a bank. In order to secure the repayment of the loan, the property purchased is registered as security. The calculation of the mortgage is based on the interest for the loan as well as the amortization as a proportion of the loan. The interest rate conditions are established with the finance company, they can be fixed or non- fixed. The duration can be variable or non-variable.
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To be able to obtain a mortgage from a bank, you must be able to contribute at least 20% of the purchase price for the sought-after property. It is a necessary requirement in order to be able to obtain a mortgage in all Swiss counties and municipalities. To make a request for a mortgage you must have your own funds.
These could be comprised of savings, a 2nd pillar, (pension fund), a 3rd pillar, (pension fund or endowment policy insurance), a donation or a mortgage which you have already acquired. Half, thus 10%, must come from savings other than from a 2nd pillar. In Switzerland the 2nd pillar and the 3rd pillar correspond to saved monies whose basis forms part of professional contingency. In Switzerland, own funds cannot originate from revenue, even if, theoretically, this is sufficient to cover them.
For an apartment at CHF 500,000, the bank, therefore, would agree to lend you a max 80% from the purchase price. Meaning that the maximum amount for the mortgage would be 400,000 Swiss Francs. Thus, you must provide at least CHF 100,000 from your own finds. At least CHF 50,000 of this amount must come from savings and the remaining CHF 50,000 could come from other sources, for example a 2nd pillar.
To the 20% of your own funds should be added notary costs. These cover costs related to the act of purchasing and the mortgage note. These costs can vary from one county to another. Additional costs can be incurred depending on the county where you decide to purchase a property. In the case when you decide to purchase an apartment for the price of CHF 500,000 in the county of Geneva, notary costs can rise to almost CHF 28,000 .
In addition to the 20% of your own funds, the bank will check your ability to repay the loan. It will ensure that you can guarantee the repayment of the loan that it grants you. In general, in Switzerland all of the costs related to the property, including the amortization, maintenance costs, etc., must not exceed 33 % of your gross annual income.
Therefore, for an apartment costing CHF 500,000, your gross annual income must be greater than CHF 90,000 per year. Potential debts and borrowings must also be taken into consideration at the time your budget is estimated.
Once you have gathered sufficient funds of your own to cover 20% of the purchase price of the house of your dreams and you are certain that your income is sufficient to cover the mortgage amortization and maintenance costs, you can make an appointment with a financial institution.
The bank thus agrees to lend you the maximum of 80% of the purchase price for your home. Switzerland presents the specificity that a part of the mortgage cannot be depreciated. Meaning that the loan cannot be repaid 100%. The purchase of a property is, thus, always accompanied by a debt to the bank. The system introduces the advantage of being able to benefit from a reduction in taxation. The interest payable to the bank is deductible from taxes throughout Switzerland. With regards to amortization, it must be repaid during the 15 years following purchase and before retirement age.
Of course, the purchase of a property and obtaining a mortgage will have an impact on your budget. Additional costs will also arise, like maintenance costs and rental value. Swiss taxation, however, allows the deduction of numerous costs at the time when you complete your tax return. For example, mortgage costs. Additionally, it should be mentioned that the monthly mortgage repayment is generally less than the rental costs for a house or an apartment.
The main difference between Swiss citizens and resident and non-resident foreign people lies at the level of the right to access the property. If they amass sufficient funds, a Swiss citizen, whether they live in Switzerland or abroad, will have the right to unhindered access to the property which is on Swiss territory. Whereas a foreign person residing in Switzerland will only have access to the property in accordance with their residence permit. A person who holds a C residence permit will have the same rights to access the property as a Swiss citizen. The same will apply to the holder of a B residence permit, so much as they are a national of a European country. The holder of a B residence permit originating from a non-European country has the right to purchase a property solely for personal use. All of the other people living in Switzerland and benefiting from another form of residence permit have the same rights as non-residents.
In Switzerland, non-resident foreign people do not have easy access to a property because they can only become property owners under certain conditions. Numerous laws block their access to purchase. It is to be noted that the options are different depending on if the non-resident foreign person originates from a European or Non-European country.
Furthermore, the number of second homes that can be acquired by non-resident foreign people is limited to 1500 per year for the entire country. They are mixed between the counties and municipalities with tourist potential.
If a foreign person has the right to purchase a property in Switzerland, they can make a request for a mortgage. However, this will also only be granted to them under certain conditions. In the case where a foreign person officially residing in Switzerland would like to make a request for a mortgage, they will be subject to the same conditions as nationals. In contrast, foreign people who are not resident in Switzerland can only make a request for a mortgage under specific conditions, as defined by the financial institution. Each bank, thus, has its own rules. To identify if it will grant a loan to a non-resident foreign person the person must not only be in possession of sufficient funds, but also positively respond to a multitude of Requirements which are specific for each financial institution. Very often, the fact of being an existing customer of the bank is an element which is seen to favour the mortgage request. The bank will examine in detail the links that the person has with Switzerland. Do they already live in Switzerland? Do they have family connections with the country? What are the reasons for the purchase?
In the case where you would like to undertake an assessment of your financial capacity to support the purchase of house and the related costs, numerous banks offer mortgage calculators on their websites. The tool allows you to have an idea of the possibilities that could be available to you to achieve your dream of becoming a property owner in just a few clicks.