Home financing

How to turn the dream of owning a home into a reality

Own capital – this is what you need to have

The amount and source of your own capital play an important role in home financing. Swiss citizens have several options when it comes to amassing the required sum.

Mortgage interest rates are at a record low in Switzerland, and housing has seldom been as affordable. But euphoria aside: You need solid financing to turn the dream of your own house or apartment into a reality. Next to your income, the own capital that you provide plays an especially important part. Subtracting this sum from the sales price will give you your loan requirements. When assessing a credit application, Swiss banks require home buyers to provide at least 20% of the purchase price themselves. Additionally, the burden imposed by the property may not exceed one third of your gross income. If you don’t have the required own capital on hand in your bank account, there are several alternate sources of money.

Access the pension fund

Under certain circumstances, Swiss citizens can pledge or receive in advance part of the money from their pension fund (second pillar) for the purpose of financing a home. This is made possible by the Swiss law to promote home ownership (Gesetz zur Wohnungseigentumsförderung WEF). However, a number of conditions must be met to allow you to access the pension fund money. Among other things, you will have to permanently inhabit the home yourself, and must provide own capital amounting to at least 10% of the purchase price that does not come from the pension fund.

If you decide to receive pension fund money in advance, your old-age, invalidity and survivor’s pension are reduced. This means you will have to put aside money to compensate for the gap – by means of a private insurance, for example. Another disadvantage is the taxation of the paid-out capital. Furthermore, important deadlines and age limits must be observed in Switzerland when calculating the sum to be paid out. The advantages of receiving pension fund money in advance are a reduced mortgage debt and a lower interest burden due to increased own capital.

In Switzerland, you can also pledge the pension fund money. In this case, your retirement benefits are not reduced, the payout is not taxed and your taxable income is lower due to higher interest on debt. Mortgage and mortgage interest rates are higher with the pledge, however, since the Swiss bank will increase your mortgage debt by the pledged amount.

Pension fund assets can only be accessed by either of these options until three years before the regulatory retirement age.

Family support

If your parents want to support the planned purchase of real estate with their assets, Switzerland allows an advancement of inheritance or an endowment. Both options are also open to other wealthy relatives. For example, if you have siblings, they could all receive the same once-only sum from your parents. If only one sibling receives a certain sum, then this advancement of inheritance will be taken into account at the division of the estate after the parents’ death; it may not infringe on the other heirs’ legal share. An endowment or an advancement of inheritance can also be used for mutual benefit: Waive your right to an inheritance for as long as one of your two parents remains living. They can then remain in their home and have more capital at their disposal to enjoy their sunset years. Whether an inheritance or endowment tax applies depends on the Swiss canton in question. Another way to increase your own capital is a loan from family members or friends. If this loan is interest-free and the term is at least equal to that of the mortgage, the Swiss Bank counts the loan’s sum as part of your own capital.

Savings, securities and valuables

What many people are unaware of: Swiss banks consider securities like stocks or bonds part of own capital – just as they do classic 3a accounts (third pillar) and life insurance. This is true regardless of whether or not you draw on or pledge these assets; the bank merely requires the securities as an additional ensurance. If none of this is an option for you as a home buyer, you can also sell valuables like art, jewelry or gold bullion and add the proceeds to your own capital. Otherwise: Wait and save money until you have amassed enough own capital.