Taking out a mortgage in Switzerland is no easy feat. What do you need to consider when buying a property abroad and is it possible to finance it in Switzerland?
Let's start at home
In Switzerland, as long as you have sufficient capital, you can buy a property by taking out a mortgage.
We specify possible because it is in no way guaranteed as a series of conditions must be met in order for the lending bank to have the necessary guarantees.
These are often calculations that take into account your income, your ability to repay, your age, your history, your debts and, if applicable, the value of your retirement funds.
The reasoning in Switzerland related to the various strategies for acquiring real estate is relatively unique in Europe. The inverted logic of repaying interest over a very long period of time compared to repaying the capital as essential for some but not all, may come as a surprise if you come from countries such as Germany, France or Belgium.
As the housing stock is of high quality, demand exceeds supply and rents are very high, this configuration can make sense for the Swiss resident. Financially, as long as interest rates remain at reasonable levels, it can even be interesting.
However, you need to have the necessary capital to get the job rolling. 20% of the value of the property to be exact, in line with the valuation made by your bank. Solutions exist to make up for a lack of capital by using, in various forms, your second and/or third pillar.
Switzerland is also relatively resilient to US-led policy rate movements, which in turn influence European interest rates. If these increase, as has been the case for several months, Switzerland will not be spared, but it could be done more smoothly than in some of our neighbours.
Why an increase in interest rates?
The Fed, the US Federal Reserve, is using the leverage of interest rates to bring about a stabilization or even a decrease in inflation, which has been impacting food and energy prices for some time now. The only problem is that the effects of a rise in interest rates are delayed over time and it is possible, for a certain period of time, to suffer from both a rise in prices and a fall in investment, at the same time.
Let's look elsewhere
In our immediate neighbours, the repayment of all interest and capital is limited in time. The average is between 20 and 30 years. In principle, therefore, you are the full owner of your property before you reach retirement age.
Of course, the price of real estate, except in some large cities, is lower than in Switzerland. Banks do not necessarily require a start-up capital and, depending on the case, finance the entire amount of the acquisition or even the notary fees.
Unlike in Switzerland, monthly repayments can exceed what you would pay in rent. It's less common here.
Okay, but can I finance my purchase project for a second home from Switzerland?
The answer is no, but...
No, because the vast majority of banks refuse to do so. The risk is too great because in the event of non-payment, it is more complicated to seize your property abroad.
However, exceptions are possible for properties located in border areas. However, a French bank based in Switzerland is active in this segment and now offers financing solutions for your purchase of a second home in France. The solution is a somewhat hybrid form based on both a mandatory contribution and a time-limited repayment.
The checklist
Let's say the stars are aligned and you find a financing solution for your second home purchase. Here is a checklist to help you anticipate unpleasant surprises:
- Find out about the notary fees in the country concerned. This can be as much as three times as high as in Switzerland
- Get advice from a local lawyer who will be able to guide you through the legal customs. In some countries, a verbal agreement is already a contractual commitment. Prevention is better than cure.
- Bring a translator with you if necessary. For once, mastering the finesse of the notarial lexicon is not superfluous.
- Consider the tax implications. Double taxation at the European level is in principle avoidable, but having a second residence that generates rental income will influence your tax rates in Switzerland.
- If you're building a building, be sure to check the local building code and the scope of the general contractor's responsibilities.
And what about credit?
Good question! It is true that a personal loan offers the advantage of not being used for a specific purpose.
This allows you to compensate for a lack of capital by using the sum of your loan. Of course, this type of solution must be carefully thought out and your ability to repay must be respected.
It all depends on your funds and the value of the property as well as your other financial obligations. However, the process would be quick, does not require any heavy administrative preparation and, by using a financing platform such as the one offered by Milenia, you would also benefit from sound advice and a process for drawing up your file that meets the quality standards imposed by the financial authorities in Switzerland.
Are you chaining me?
Dreams exist to be realized. Just be careful to avoid the nightmare. In Switzerland, legal and banking standards govern your procedures quite well. Options exist, but you will not escape the legal impositions and good banking practices that are in place to limit risk-taking for all parties involved.
Also, in Switzerland, we have a good reputation in terms of construction and urban planning. This is not necessarily the case elsewhere.
After all, fear should not drive your choices. Possibilities exist in border areas, via Crédit Agricole Next Bank for France, through a financing platform to complete the necessary capital... Simply and as always, take care to do your homework, compare and gauge the right time to get started. You should also continue to keep a close eye on the rates applied, which have been constantly changing since the end of last year.
Do you need advice about your personal loan? Get in touch with us! We will be happy to advise you in a friendly and transparent manner.
