Switzerland is known for its stunning landscapes, high quality of life, and stable real estate market, making it an attractive place for both residents and expatriates to buy a house or residential apartment. However, purchasing property in Switzerland involves certain legal and financial requirements. In this brief guide, we’ll cover the key aspects of buying a home, obtaining a mortgage, using pension funds, and how income factors into the process when only one partner or both are working.
1. Key Requirements for Buying Property in Switzerland
Who Can Buy Property?
If you're a Swiss citizen or a foreign national with a Swiss residence permit (B or C), you can buy property without restrictions. Foreigners living outside Switzerland or those holding an L permit have stricter regulations and may only purchase property under specific conditions, usually for personal use.
Property Types
In Switzerland, you can buy a house, an apartment, or a piece of land to build on. However, depending on the canton (state), there may be restrictions on purchasing second homes or holiday homes, particularly in popular tourist areas.
Down Payment Requirement
Swiss banks typically require a down payment of at least 20% of the property's value. Out of this, at least 10% must come from your personal savings and cannot be sourced from pension funds.
2. Mortgage and Loan Possibilities
Mortgage Structure
In Switzerland, mortgages are generally divided into two parts:
- First mortgage: Covers around 65% of the property value. This mortgage does not need to be repaid as long as the interest is paid regularly.
- Second mortgage: Covers the remaining 15%, and this part must be repaid within 15 years or by the time you turn 65 (retirement age).
Loan Terms
Swiss mortgages often have fixed interest rates for a set term (e.g., 5 or 10 years), offering stability. Banks also offer variable and Libor-based rates, depending on the market situation and the borrower’s preferences.
Affordability
To qualify for a mortgage, the monthly costs of the property (interest, maintenance, and amortization) must not exceed one-third of your household income. Swiss banks generally calculate affordability based on a theoretical interest rate of around 5% to ensure you can manage payments even if rates rise in the future.
3. Using Swiss Pension Funds (Pillar 2 and Pillar 3a)
Swiss pension funds can be an excellent resource when buying a home.
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Pillar 2 (Occupational Pension): You can use funds from your Pillar 2 pension for the down payment or to reduce your mortgage, provided the property is for your primary residence. Up to the full vested amount can be used if necessary.
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Pillar 3a (Private Pension Savings): Similar to Pillar 2, you can use Pillar 3a funds to finance a primary residence. These funds are limited to the amount saved in your Pillar 3a account, but they provide greater flexibility.
It’s important to remember that using pension funds reduces your retirement savings, and if withdrawn, they are subject to tax at a reduced rate. Furthermore, the earlier you withdraw, the more your retirement fund will be affected long-term.
4. Buying Property When Only One Partner is Working vs. Both Working
Single Income Household (Only Husband or Wife Working)
If only one partner is working, the affordability calculations will be based solely on that individual’s income. This can limit the borrowing capacity, but Swiss banks do consider other factors like overall savings, pension fund contributions, and the stability of the income.
For example, if the household has significant savings or pension funds, you may still qualify for a mortgage even if the main income is lower. However, keep in mind that affordability remains key: the property costs must not exceed one-third of the working partner’s income.
Dual Income Household (Both Partners Working)
When both partners are working, the combined household income is taken into account, increasing your borrowing capacity and making it easier to afford a higher-value property. Swiss banks are generally more favorable to dual-income households as it spreads the financial risk and increases the likelihood of loan approval.
If one partner stops working in the future, it is important to reassess the affordability of the mortgage to avoid financial strain. Swiss banks may inquire about long-term plans to ensure that the mortgage remains affordable even if circumstances change.