How much equity do you need for a house in Switzerland?

The 3-point orientation

For a house in Switzerland, you usually need at least 20% equity or own funds. With a purchase price of CHF 1,000,000, this corresponds to at least CHF 200,000 in equity. At least 10% of the property value must come from hard own funds, i.e. not from the 2nd pillar. Depending on the situation, the remaining equity may come from pillar 3a, pension fund, savings, advance inheritance, securities or gifts.

The principle: At least 20% equity

The most important rule of thumb when buying a house in Switzerland is: The bank usually finances a maximum of 80% of the property value with a mortgage. Buyers must contribute the remaining 20% themselves. These own funds are called equity or own funds.

With a purchase price of CHF 900,000, you therefore need at least CHF 180,000 equity. For a house for CHF 1,200,000, it is at least CHF 240,000. For a property for CHF 1,500,000, the capital requirement has already risen to CHF 300,000. These amounts show why residential property in Switzerland has a high financial barrier to entry.

It is important that banks often calculate not only the purchase price, but also the lower value from the purchase price and bank valuation. If the bank values a house lower than the agreed purchase price, the difference must also be financed from its own resources. As a result, the effective equity requirement may be higher than the simple 20% rule of thumb suggests.

Hard equity: At least 10% not from the pension fund

The rule on hard own resources is particularly important. At least 10% of the property value must come from sources that do not come from the 2nd pillar or pension fund. This rule is intended to prevent a house purchase from being financed too heavily through pension funds.

Bank deposits, savings accounts, securities, pillar 3a, advance inheritance, gift, private loans or personal contributions are typically considered to be hard equity, provided that the bank recognizes them. Although the pension fund can be used for residential property, it must not replace all equity. Raiffeisen sums it up as follows: A home requires at least 20% equity, of which at least 10% hard equity. (raiffeisen.ch)

An example: When buying a house for CHF 1,000,000, you need at least CHF 200,000 of equity. At least CHF 100,000 of this must come from hard own funds. Depending on the situation, the remaining CHF 100,000 can come from the pension fund, for example through a WEF advance withdrawal or a pledge.

What counts as equity?

equity when buying a house includes various assets. Liquid assets such as bank deposits, savings accounts or fixed-term deposits are the easiest. These funds are easy for the bank to understand and are immediately available. Securities can also be used as equity, although the bank can make a security discount depending on the risk.

Funds from Pillar 3a are also possible. These can be pre-purchased or pledged for owner-occupied residential property. An advance withdrawal increases the available equity, while a pledge serves more as an additional security. An advance inheritance or a gift can also represent equity, provided that the origin is properly documented.

Pillar 2 can be used through home ownership promotion. This includes an advance pension fund withdrawal or a pension fund pledge. Both options have different consequences for taxes, retirement plans, mortgage and risk. The use of pension funds should therefore always be planned consciously.

Example calculation: House for CHF 1,000,000

A simple example calculation shows the structure. A house costs CHF 1,000,000. The bank finances a maximum of 80%, i.e. CHF 800,000, via mortgages. Buyers must contribute at least CHF 200,000 in equity.

Of this CHF 200,000, at least CHF 100,000 must come from hard own funds. This could be 70,000 francs from savings and 30,000 francs from pillar 3a, for example. The remaining 100,000 francs could come from an advance pension fund withdrawal, provided that the legal requirements are met.

In addition, buyers should plan for ancillary purchase costs. Depending on the canton, there are notary fees, land registry fees, property transfer tax or other fees. These costs often have to be borne in addition to equity and are not always financed by the mortgage. Anyone who only has exactly 20% of equity therefore often has too little financial leeway.

equity does not equal affordability

Many buyers focus on the question of whether they have enough equity. But affordability is just as important. The bank checks whether the income is sufficient to cover mortgage interest, amortization and service charges in the long term. In return, banks usually do not expect the current interest rate, but an imputed interest rate.

An imputed mortgage interest rate of around 5%, maintenance and service charges of around 1% of the property value, and repayment of the second mortgage are often expected. As a rule of thumb, UBS states that running costs for owning a home should not amount to more than around 33% of gross income. (ubs.com)

This means that even those who have enough equity do not automatically get a mortgage. If the income in relation to the purchase price is too low, financing can fail. Conversely, a household with a high income but too little own resources is also unable to buy. equity and sustainability must go hand in hand.

First and second mortgage

In Switzerland, financing is often divided into a first mortgage and a second mortgage. The first mortgage normally covers up to around two thirds of the property value. The second mortgage mortgages the area up to a maximum of loan-to-value ratio.

The second mortgage usually has to be repaid. In most cases, it must be returned within 15 years or by retirement at the latest. This amortization puts an additional burden on the household budget and is included in affordability calculation.

For buyers, this means that the more equity is contributed, the smaller the second mortgage is or the sooner it can be avoided altogether. This reduces amortization pressure, interest costs and risk. More than 20% equity can therefore create financial stability and, under certain circumstances, enable better mortgage conditions.

Pension fund as equity: advantage and risk

When buying a house, the pension fund can help meet the own funds requirement. Capital from the 2nd pillar is paid out via a WEF advance payment and invested in the home. As a result, equity increases and the mortgage can be smaller.

The advantage is clear: Buying a house is easier to finance. The monthly burden can fall because less outside capital is required. The pension fund advance can be decisive, particularly when real estate prices are high.

The downside lies in retirement planning. An advance withdrawal reduces retirement assets and can lower subsequent pension benefits or lump-sum payments. There is also a capital withdrawal tax. If the house is sold at a later date, the advance payment must in principle be paid back into the pension fund, provided that no replacement is purchased.

Pillar 3a as equity

Pillar 3a is particularly flexible when buying a house. In principle, it is one of the hard own resources and can be used for owner-occupied residential property. Buyers can withdraw 3a balances or pledge them for the benefit of the bank.

An advance withdrawal from Pillar 3a increases available equity. As a result, the mortgage can be reduced. At the same time, there is a capital collection tax and retirement capital decreases. If pillar 3a is pledged, the capital remains in retirement provision but serves as security for the bank.

Many households also use Pillar 3a for indirect amortization. The mortgage is not repaid directly, but is paid regularly into Pillar 3a. The 3a balance is pledged and later used to repay. This can be attractive for tax purposes, but requires discipline and planning.

Don't forget additional purchase costs

In addition to actual equity, buyers must consider ancillary purchase costs. Depending on the canton, this includes notary fees, land registry fees, property transfer tax, debt certificate costs and other fees. The altitude varies greatly by canton and municipality.

In some cantons, these service charges are manageable; in others, they can amount to several percent of the purchase price. Anyone who buys a house for CHF 1,000,000 should therefore not only plan for CHF 200,000 equity, but also keep a reserve for service charges and relocation.

Liquidity is also needed after the purchase. Renovations, furniture, gardening, insurance, minor repairs or unexpected costs may arise immediately after moving in. Buying a house without a financial cushion is risky, even if the bank approves the financing.

Why more than 20% equity can make sense

The minimum requirement of 20% equity is only the lower limit. Those who can contribute more are often better off financially. A lower mortgage reduces interest costs, amortization obligations and risk when interest rates rise.

More equity can also improve the negotiating position vis-à-vis banks. The lower loan-to-value ratio, the lower the risk for the bank. This can be reflected in better conditions, more flexibility or more stable financing. PostFinance points out that more equity may enable more attractive interest rates. (postfinance.ch)

At the same time, you shouldn't put all your free assets into the house. If you tie up all reserves, you lose flexibility. A good financing strategy balances equity, liquidity reserve, mortgage, pension and tax planning.

What happens if the bank values lower?

A frequently underestimated point is bank valuation. The bank does not automatically finance 80% of the purchase price paid, but is based on the loan value recognized by it. If the bank estimates the value to be lower than the purchase price, the difference must also be paid from own funds.

Example: The purchase price is CHF 1,000,000, but the bank only values the house at CHF 950,000. The maximum mortgage of 80% is then CHF 950,000 and amounts to CHF 760,000. The buyers must finance a total of CHF 240,000 themselves: CHF 190,000 as 20% of the bank value plus CHF 50,000 difference to the purchase price.

This shows that in competitive markets or when supply prices are very high, the need for equity can rise significantly. Buyers should therefore obtain a financing confirmation and know the bank rating before signing the purchase contract.

equity for renovations and older houses

For older houses, the standard bill is often not enough. If major renovations are necessary after the purchase, additional capital must be planned. Roof, heating, façade, window, kitchen, bathroom, pipes or energy-efficient renovation can quickly result in large amounts of money.

The bank does not always finance renovations in full or only if they add value and are properly budgeted. Pure maintenance or comfort improvements must be paid in part from your own resources. Buyers of older houses should therefore plan for more equity or at least a larger reserve.

A low purchase price can be deceptive if high investments are required shortly after the purchase. Anyone buying a house should therefore not only check the purchase price and mortgage, but also the need for renovation and long-term maintenance costs.

Practical recommendation: structure equity properly

Before buying a house, you should prepare a clear overview of your own funds. This includes cash, savings accounts, securities, pillar 3a, pension fund, advance inheritance, gifts, private loans and planned personal contributions. In addition, it should be examined which funds are considered hard equity and which are only recognized to a limited extent.

You should then prepare a net invoice: purchase price, equity, mortgage, ancillary purchase costs, tax consequences when withdrawing retirement, renovation budget and liquidity reserve. Only when this calculation pays off is the financing solid.

A safety cushion is particularly important. Even after the purchase, there should be enough money for repairs, job changes, family planning, illness, interest rises or unexpected expenses. A home is only safe in the long term if not every franc has been earmarked.

Conclusion: 20% is mandatory, more is often better

The answer to the question How much equity do you need for a house in Switzerland? is: As a rule, at least 20% of the property value. For a house for CHF 1,000,000, that is at least CHF 200,000, of which at least CHF 100,000 must come from hard own funds, i.e. not from the pension fund.

In addition, the affordability must be right. The bank checks whether mortgage interest, amortization and service charges can be financed with income in the long term. Anyone who has enough equity but too little income may still not get a mortgage. Anyone who has enough income but too little equity also fails.

For buyers, the following applies: understand equity not only as a minimum amount, but as part of a stable overall financing. Anyone who has 20% equity, sufficient hard equity, sustainable income and a reserve for service charges and renovations is much safer when buying a house.

Glossary of equity when buying a house

equity: Own funds that buyers contribute to buying a house. In Switzerland, at least 20% is usually required.

Hard equity: equity that do not come from the pension fund, such as savings, securities, pillar 3a or gifts.

loan-to-value ratio: Proportion of real estate value financed by a mortgage. A maximum of 80% is usual.

affordability: Verification by the bank as to whether income, imputed interest, service charges and amortization can be financed in the long term.

Second mortgage: part of the mortgage above the first mortgage, which must usually be repaid within 15 years or until retirement.