Buying a house in Switzerland - What are the rules?

Switzerland has a unique real estate market in many ways. Compared to other countries, there are specific rules and peculiarities that strongly influence the purchase and ownership of real estate, especially for expats and people with a residence permit. In this article, HYPOHAUS takes a closer look at these differences and explains how the real estate market works in Switzerland.

Can I buy a property in Switzerland as an expat?

To answer the most important question right away: in Switzerland, not every expat and international is free to purchase residential property. The Swiss real estate market is heavily regulated, which includes measures such as restricting the purchase of real estate by non-Swiss nationals.

Accordingly, people with a Swiss B residence permit can only purchase owner-occupied properties, while people with a C residence permit have largely the same rights as Swiss citizens and can purchase both owner-occupied and rented properties (investment properties).

Without a B or C residence permit, only approved quotas of vacation properties can be purchased, which severely restricts access to the Swiss real estate market for people living abroad. These regulations are intended to ensure that the real estate market in Switzerland remains stable and is not destabilised by excessive foreign investment.

Can I get a mortgage from a Swiss bank?

If you qualify for the purchase of a property with your residence permit, the next step is a financial feasibility check by a Swiss bank. Among other things, this check includes an assessment of affordability and the loan-to-value ratio.

Affordability and loan-to-value

A key difference when buying real estate in Switzerland is the concept of affordability. This is a rule that ensures that buyers can afford the property in the long term, even if interest rates were to rise in the future.

Banks check whether the annual housing costs - i.e. mortgage interest, amortisation and ancillary costs - do not exceed one-third of the gross household income. An imputed interest rate of 5,00 percent is used to calculate mortgage interest, even if actual interest rates are currently lower. Current interest rates are between 1,50 and 2,00 percent (as of July 2024).

This conservative calculation serves to ensure the long-term sustainability of the mortgage even in the event of a possible rise in interest rates, and thus avoid financial difficulties.

With this conservative approach, Swiss banks ensure that the real estate market does not end up in a situation similar to the one which prevailed in the USA during the 2008 financial crisis, when many American property owners were no longer able to service their mortgages due to rapidly rising interest rates and their properties had to be foreclosed as a result.

The concept of loan-to-value also plays a major role when considering the granting of a mortgage in Switzerland. This involves the ratio of the mortgage loan to the value of the property. In Switzerland, the maximum loan-to-value ratio is generally 80 percent, which means that at least 20 percent of the property value must be covered by equity.

Own funds composition

In Switzerland, a buyer must contribute at least 20 percent of the purchase price as equity. It should be noted that at least 10 percent of the purchase price must consist of so-called "hard" equity, i.e. not pension fund assets. "Hard" equity can come from savings, an inheritance or the sale of securities, for example. Savings from pillar 3 private pensions may also be used for equity capital. The remaining 10 percent can come from the 2nd pillar pension fund.

These strict regulations are intended to ensure that buyers have sufficient financial resources and are not overly reliant on external financing from the bank when purchasing a property. It also serves as a stability mechanism for the Swiss real estate market should real estate prices one day fall.

Fixed-rate and SARON mortgages in Switzerland

Two types of mortgages are particularly common when financing real estate in Switzerland: Fixed-rate mortgages and SARON (Swiss Average Rate Overnight) mortgages.

Fixed-rate mortgage

A fixed-rate mortgage has a fixed interest rate over a fixed term, which typically has a duration between two and 10 years. The main advantage of a fixed-rate mortgage is the planning security provided by fixed monthly instalments and protection against rising interest rates during the term. However, it offers less flexibility in the event of early termination and can be more expensive if interest rates fall during the term.

SARON mortgage

In contrast, the interest rate of a SARON mortgage is variable and is based on the current market interest rate. It is calculated based on the SARON reference rate (Swiss Average Rate Overnight). This can lead to savings when interest rates fall and offer flexibility thanks to shorter terms. However, a SARON mortgage also brings with it unpredictability of monthly costs due to fluctuating interest rates and the risk of interest rate increases, which can drive up costs.

Amortising mortgages in Switzerland

In contrast to many other countries where mortgages must be repaid in full, it is common practice in Switzerland to amortise the mortgage to only 65 percent of the loan-to-value until retirement. This means that around 35 percent of the mortgage must be repaid within a certain period of time so that only 65 percent of the loan value remains as debt until retirement. This practice has tax advantages, as mortgage interest is tax-deductible in Switzerland. It also allows a certain degree of flexibility in financial planning.

Price level and market dynamics

The price level on the Swiss real estate market is very high by international standards. This is due to strong demand, limited supply and the high quality of life in Switzerland. The market dynamics are also particularly dynamic, as real estate in Switzerland is often considered a safe investment and is therefore in high demand even in times of economic uncertainty.

Get informed about buying homes in Switzerland

The Swiss real estate market is characterised by a number of unique features that set it apart from other markets. From strict regulations regarding the acquisition and approval of a mortgage, to specific financing options such as fixed-rate mortgages and SARON mortgages, to the special practice of repaying mortgages - all these factors contribute to the stability and attractiveness of the Swiss real estate market. It is therefore important for buyers and investors to inform themselves thoroughly about these special features in order to be able to operate successfully on the Swiss real estate market.

If you have reserved a property in Switzerland and need the best mortgage solution for your project, visit HYPOHAUS. With the HYPOHAUS mortgage calculator, you can make an exact calculation for your dream home and, if required, submit your mortgage application online. To do this, it is important that you meet the criteria for a mortgage in Switzerland.