Purchasing property in scenic Switzerland is the dream of ex-pats of all ages. Whether searching for a retirement property or a vacation home, Switzerland real estate is in a class of its own.
Switzerland is known for world-class chocolate, skiing, and real estate. The banking and finance industries of Switzerland are world-renowned. But people often wonder, “Can foreigners get a mortgage in Switzerland?” The answer is yes, and there are several options available.
If you are looking to buy a home in Switzerland, you will need to be well-versed in the nuances of Swiss mortgages. Below, you’ll find a guide to Swiss mortgages that will arm you with the knowledge and power to make well-educated and informed decisions.
Types of Mortgages in Switzerland
The types of mortgages in Switzerland are similar to those you will find in other nations but with some complexities. For example, Swiss mortgage terms can be much longer than the mortgages in other countries. Check out these common types of mortgages, including the new standard for SARON mortgages.
In a fixed-rate mortgage, the interest rate remains stable for the entirety of the agreement. This means if the mortgage rate is two percent, you will pay two percent interest on your debt for the duration of the mortgage. The stability of a fixed-rate mortgage makes it appealing to many potential homeowners. A drawback of a fixed-rate mortgage is that terms remain the same, even if interest rates drop.
Variable-rate mortgages are flexible arrangements that have continuously adjusted interest rates. This means that your monthly payments can increase or lower depending on the interest rate. An advantage of a variable-rate mortgage is that you can benefit from interest rate decreases. These mortgages can last for 30–50 years, much longer than mortgage terms worldwide.
London Interbank Offered Rate (LIBOR) mortgages are forms of variable-rate mortgages. These mortgages have short durations (up to five years) and rollover terms. LIBOR mortgages are currently being phased out and replaced with Swiss Average Rate Overnight (SARON) mortgages. Swiss Average Rate Overnight (SARON) mortgages will offer the same changing interest rates and rollover periods but will use the Swiss markets.
Bridging loans are short-term loans that cover any financial voids present from buying a new Swiss home before selling the old one. Bridging loans typically cover up to 75% of the value of the prospective home.
Offset mortgages permit you to combine a mortgage with funds from another account like a savings account or retirement account. These mortgages allow you to pay off the interest from your mortgage in a quicker manner.
Who Can Get a Mortgage in Switzerland?
If you live in Switzerland and have a Swiss B or C residence permit, you can apply for a mortgage. A B residence permit allows you to apply for one mortgage at a time. Swiss nationals or those with C residence permits can apply for multiple mortgages at once.
To get a Swiss mortgage, you need to provide at least 20% of the property cost ahead of time. Your mortgage payment must not exceed 33% of your annual net income to ensure that you are not over-leveraged. If you can fulfill these two requirements, you have a better chance of getting a Swiss mortgage.
Getting a mortgage as a foreigner in Switzerland
Getting a mortgage as a foreigner in Switzerland is possible. Those without a residence permit can also apply for mortgages, but there are some restrictions to keep in mind. The Lex Koller law limits the purchase of Swiss property by foreigners. Under the Lex Koller law, non-residents must apply for a license to buy from a cantonal authority.
To get a mortgage as a foreigner in Switzerland, you must have:
- Strong personal ties to Switzerland.
- Suitable reason to purchase property in Switzerland
- Good financial standing to maintain two homes
How Much Can You Borrow for a Swiss Mortgage?
A bank will typically lend prospective buyers 80% of the property’s value. Swiss standards require homebuyers to have 20% of the value ahead of time, with at least 10% in liquid form. The amount of money you can borrow also depends on your earnings. Your monthly payments typically cannot exceed 33% of your monthly income. This can be a combined wage if more than one person’s name is on the mortgage.
How to Apply for a Mortgage in Switzerland?
When applying for a mortgage in Switzerland, the more evidence you can provide of your financial standing, the better. Some of the documents that you should present to a lender when applying for a mortgage in Switzerland include:
- Valid identification such as passport
- Residence permit for Switzerland
- Proof of salary
- Most recent tax return
- Bank statements
- Details on the property you are buying
- Credit check
Mortgage Costs in Switzerland
There are a few additional fees you will need to pay on your new property. The costs that you must pay vary between each canton:
- Property transfer tax – a tax of 1-3 percent when a property changes hands
- Notary fees – around 0.1% of property costs depending on the canton
- Land registration fee – an average price of 0.5% of the purchase
- Administration costs – some banks charge for credit checks and mortgage registration fees.
You can enter your information to this Swiss government site that will give you an idea of any fees you can expect to pay.
Taxes and tax relief on mortgages in Switzerland
Property in Switzerland is considered an asset, so you must pay wealth and income tax. Property taxes calculations occur on the full taxable value of the property without taking into account related debts or mortgages. Mortgage interest and maintenance costs are income-tax-deductible.
Mortgage repayments in Switzerland
A quirk of Swiss mortgages is that most Swiss homeowners never entirely pay off their first mortgage. Instead, most Swiss mortgages consist of two mortgages: the first with an indefinite payment period and the second with a fixed payment period.
Refinancing a Swiss mortgage
Swiss lenders cannot penalize you for terminating a loan ahead of time, and this means that you can amortize a loan without paying penalties. Most lenders allow you to refinance your mortgage; you can also change banks when your mortgage is up for renewal.
A Swiss mortgage has the potential to assist in realizing your dream of owning a Swiss property. Swiss financial institutions are known for their efficiency and detail-oriented nature. As a prospective buyer, the best thing you can do is be knowledgeable on the inner workings of the Swiss mortgage system.