purchasing residential property guidance for newcomers

How to buy residential property as a newcomer to Switzerland?

Authorization, financing, affordability, repayment – if you are planning to purchase residential property in Switzerland, you should first get an idea of what is required. Learn here why good advice is essential to making the right decisions from the very beginning.

If you have recently moved to Switzerland and wish to purchase real estate, you need to be well informed in advance. The first step is to be aware of the legal requirements: If you are a citizen of an EU or EFTA country or a third-country national and already rent a place to live in Switzerland, then you should generally already be in possession of a valid residence permit (B permit). In this case, you are permitted to acquire property or an existing building for your own use. If you have a C permit for Switzerland, you are allowed to buy more than one plot of land for residential use or real estate of any kind without requiring special authorization. 

Financing your real estate

As a general rule, the mortgage lender will finance a maximum of 80% of the market value of the property. So, you will have to contribute at least 20% of the purchase price as equity yourself. At least half of that amount must be your own funds and not taken from your employee benefits insurance.

Mortgage financing is normally divided into a first mortgage and a second mortgage. The first mortgage can cover up to a maximum of 66% of the purchase price. If your need for financing exceeds that percentage, then you will need to take out a second mortgage to cover the remaining amount. The second mortgage has to be repaid in regular installments over a maximum of 15 years before you reach the age of 65.

Affordability calculation

In order to guarantee affordability, your total living expenses (mortgage interest, repayments, maintenance, and ancillary costs) should not exceed one-third of your gross income. Many banking institutions use a theoretical rate of 5% to calculate the mortgage interest to ensure that the mortgage would still be affordable if interest rates were to rise. Yearly maintenance and ancillary costs such as utilities, insurance, and minor repairs, are then added to this at a general annual rate of 1% of the market value.

Mortgage types and repayment

In Switzerland, clients can generally choose from four different mortgage types. A good advisor will determine your risk profile with you so that you can make the appropriate choice.

You can even save money when repaying your mortgage, depending on how you do it. With direct repayment, you pay the mortgage back to the bank in regular installments. With indirect repayment, the installments are paid into a tied pension provision account or safekeeping account or into a life insurance policy. The latter option allows you to benefit from consistent tax deductions throughout the mortgage term, provided interest rates do not change.