Budgeting your own home

More expensive properties – greater financial pressure

Since 2002, property prices have risen in Switzerland by approximately 36 per cent – considerably more than Swiss salaries. Despite low interest rates, banks’ requirements when granting mortgages have remained stringent, and may indeed have become even stricter.
For example, banks require future property-owners to pay at least 20 per cent of the purchase price out of their own pockets before granting them the remaining 80 per cent in the form of mortgages. Banks assess applicants’ incomes conservatively, and do not take into account irregular components such as bonuses or premiums.

Equity capital from loans, savings and pension funds

The funds that prospective buyers can raise themselves to finance their own homes are described as equity capital or capital resources. The more capital resources you are able to raise, the lower your mortgage will be. A lower mortgage will mean that your monthly mortgage interest will be lower.
Particularly for families and younger people, the required 20 per cent equity capital is a huge hurdle on the path to buying their own home. Ten per cent of equity capital should consist of capital resources derived from savings, securities, loans, life insurance policies, anticipatory succession or from vested private benefits (Pillar 3a). You might own a building plot or inherited land that has not been mortgaged and can thus be taken into account as equity capital. Personal contributions, such as work that you carry out on your property yourself, are also taken into account as equity capital – to a maximum value of 5 per cent of building costs.
You can pledge or withdraw 10 per cent of your capital resources in advance from assets in your pension fund.

Running costs for interest payments, amortisation and maintenance

Besides the capital resources requirements, as soon as you are granted a mortgage, you will also have to pay the running costs for interest payments, amortisation of the mortgage and the maintenance of your new home. These running costs should not exceed one-third of your annual gross income.

• Mortgage interest rates: to ensure that you remain trouble-free even in periods of high interest rates, you would be well advised to budget an average rate of 5 per cent.
• Amortisation: the capital loaned by the bank is normally divided into a first and a second mortgage. The first mortgage finances 66 per cent, the second mortgage finances 14 per cent of your borrowing requirements. The second mortgage must be paid back within 15 years, or by the time you retire. Budget approximately 1 per cent of the entire bank loan per year for the amortisation.
• Maintenance and ancillary costs: you should reserve 0.7 to 1 per cent of the purchasing price for ancillary and maintenance costs for your property. These include insurance costs, water and sewage rates, refuse collection, property taxes – which will depend on the canton – as well as utility expenses for energy and hot water, service agreements, running building maintenance costs and minor repairs as well as the maintenance of the neighbourhood and garden.

Affordability calculator – case study

Our affordability calculation illustrates the example of recurring costs for residential property based on a family with an income of CHF 140,000.

• Property purchase price CHF 700,000
• Mortgage (80 per cent of the purchase price) CHF 560,000
• Recurring costs
• Mortgage interest (5 per cent) CHF 28,000
• Amortisation (1 per cent of the mortgage amount) CHF 5,600
• Maintenance and incidental expenses (1 per cent of the purchase price) CHF 7,000
• Total residential property expenses CHF 40,600
• Ratio of residential property expenses to income 29 per cent

Conclusion: this family can afford to buy its own property, as it will cost less than one-third of its income to do so.