Imputed affordability is becoming an ever-greater hurdle for home ownership.

Financing residential property is becoming increasingly difficult in Switzerland. As a result of rising prices on the Swiss real estate market, the affordability of mortgages is becoming a challenge for many households. When it comes to making the dream of owning your own home a reality in spite of this obstacle, higher equity can help.

Affordability is a big hurdle

Prices on the Swiss real estate market have been going in almost only one direction for two decades: up. The purchase of residential property is therefore out of reach for many Swiss households despite the record low interest rates. The hurdle lies in the imputed affordability, which, due to regulatory requirements, is not calculated using the effective mortgage interest rate, but rather a long-term sustainable interest rate.

With an imputed interest rate of 5%, currently only 42% of condominiums advertised across Switzerland are affordable for middle-income households. For single family dwellings, this figure drops to 26%. When we compare this to 2008, the trend is clear: At that time, the proportion of affordable properties for middle-income households was still 65% of the condominiums and 43% of the single family dwellings that were advertised.

Financing residential property is almost impossible in central locations

The problem is particularly evident for new builds and in central locations. In the cantons of Zurich and Zug, in the regions around the cities of Basel and Lucerne, and in the Lake Geneva region, there are hardly any properties that can be afforded by middle-income households. In the Glatttal area, for example, the proportion of affordable properties is 6.2%, and in the Nyon region only 3%. The situation is better in rural regions and in large parts of the Mittelland, however.

Residential property is difficult to finance in central locations

Proportion of affordable advertised properties (single-family dwellings and condominiums) with four or more rooms for middle-income households
Last data point: Q4 2020
Source: Credit Suisse, Meta-Sys, Geostat

Improve affordability with more equity

One way future owners can overcome this hurdle is to raise more equity when buying a property. If a household with an income of CHF 120,000 can reduce the proportion of debt financing from 80% to 60%, the proportion of affordable properties increases from less than a third to 56%.

However, this capital needs to be saved first. This takes a lot of time and is increasingly becoming a challenge even for high-income households. Without the support of family, for example through an interest-free loan or an inheritance, the dream of owning your own home remains out of reach, especially for younger households. They simply cannot raise the necessary capital.

Additional equity improves mortgage affordability

Proportion of affordable properties (single-family dwelling/condominium, ≥4 rooms)* based on the loan-to-value ratio and income

* Advertised properties 2018–2020
Last data point: Q4 2020
Source: Credit Suisse, Meta-Sys 

Financing residential property by withdrawing pension capital

Pension capital is all the more important, because an advance withdrawal of funds from Pillar 3a and the pension fund can be included as equity as part of the promotion of home ownership when buying residential property.

This makes capital from personal pension provision an important foot in the door when it comes to the acquisition of residential property. Careful consideration should be given to the advance withdrawal of pension fund capital in particular, however. If the capital is not repaid, benefits will be reduced after retirement and, depending on the pension fund, also in the event of death and disability.

Financing residential property requires good planning and advice

High prices and the regulatory requirements on imputed affordability are making it extremely difficult for more and more Swiss households to acquire residential property. Early planning and expert advice are important to ensure that your own home does not remain a dream, but becomes a reality.

Would you like more information on planning and financing residential property?

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