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

The 20 percent rule

To buy an owner-occupied house or apartment in Switzerland, you must raise at least 20 percent of the purchase price (market value) as equity yourself. The remaining maximum of 80 percent can be financed with a mortgage. The decisive additional legal requirement is: At least 10 percent of the purchase price must come from “real” own funds that may not come from the statutory pension scheme (pension fund/ 2nd pillar).

The hard 10 percent clause: What counts as “real” equity

The 20 percent rule sounds understandable at first glance, but in detail, it probably poses the biggest pitfall in Swiss real estate financing. As part of the so-called minimum requirements for residential financing, the legislator has established that half of the required equity (i.e. 10% of the total value) must necessarily come from free, liquid assets.

This regulation is intended to prevent buyers from plundering their entire retirement savings for the purchase of real estate and from being left without financial security at retirement age. These permitted “genuine” own resources include:

• Balances in private bank accounts (savings account, payroll account).
• Proceeds from the sale of securities (shares, bonds, funds).
• The surrender value of private life insurance policies.
• Funds from Pillar 3a private pension plans (bank deposits or retirement funds).
• Interest-free loans or gifts from the family environment.

Only when this first 10 percent of the purchase price has been secured does the bank allow the remaining 10 percent of equity to be increased by withdrawing pension fund assets (2nd pillar) in advance.

The problem with the lowest value principle

The lowest value principle consistently applied by banks is an often painful shock for buyers during the approval process. If you agree on a purchase price of one million francs with the seller of a house, but the bank only estimates the property at 900,000 francs in its internal estimate (the so-called hedonic valuation), this creates a dangerous financing gap.

The bank always calculates its financing of 80 percent and the required 20 percent equity on the basis of the lower value — i.e. 900,000 francs in this case. This means that the bank will issue a maximum mortgage of 720,000 francs (80% of 900,000 CHF). In order to still be able to buy the house for the required million dollars, the buyer must contribute the entire difference of 100,000 francs entirely out of their own pocket as additional equity. In such a scenario, the effective equity ratio rises suddenly.

Legal levers: How family and retirement planning lower the hurdle

Anyone who doesn't quite reach the 20 percent in their savings account can make use of legal tools that have developed into genuine standard models on the Swiss market:

• advance inheritance and gift: Statistically speaking, this is the most common way for young families in Switzerland to acquire residential property. The parents or grandparents transfer an amount of cash to the children, which is credited by the bank as full, real equity.
• Pledging instead of advance payment: Anyone who does not want to physically withdraw their pension fund assets or pillar 3a assets (which leads to immediate taxation and pension cuts) can pledge these assets to the bank. The funds remain in the retirement account and continue to yield returns, but serve as security for the bank. In many cases, this makes it possible to take out a higher mortgage, provided that personal affordability (income) allows this.
• Interest-free loans: Banks usually accept a loan from friends or relatives as equity, provided that the contract states that this loan ranks behind the bank's mortgage (subordination) and does not require fixed, budget-straining repayments.

The additional purchase costs: The forgotten budget

A classic mistake made by beginners when budgeting is ignoring the incidental purchase costs. The 20 percent equity must be used purely for the purchase of the property. No bank finances the fees associated with the purchase contract through a mortgage. 100 percent of these costs must also be kept available as liquid assets.

Depending on the canton (the differences between cantons such as Zurich and Bern are huge), you can expect an additional 1.5 to 5 percent of the purchase price. These costs consist of notary fees, the costs of registering the change of ownership in the land register, the fees for establishing or transferring debt letters and any property transfer tax. With a purchase price of one million francs, you should therefore have at least 20,000 to 30,000 francs in addition to 200,000 francs of equity.

Conclusion: No home without strategic saving

The Swiss system requires future homeowners to have a high level of financial discipline. The hurdle of 20 percent equity — paired with the strict 10 percent pension brake — ensures a stable but also exclusive real estate market.

In summary, anyone wishing to buy a house in Switzerland should start well in advance by specifically saving Pillar 3a and building up free assets. Since retirement provision from the pension fund may only serve as a supplement, saving “real” money remains the most important key to your own property. If the hurdle is too high on your own, an open discussion within the family is worthwhile, as an advance inheritance or an interest-free loan is often the only bridge to make the Swiss dream of living a reality.

Home financing glossary

• Real equity: Financial resources that are freely available to the buyer (e.g. cash, securities, pillar 3a) and do not come from compulsory occupational benefits (pension fund).
• Hedonic evaluation: A computer-aided, statistical method used by banks to determine the market value of a property based on the sales prices of comparable properties in the same region.
• Lowest value principle: A cantonal and bank-specific accounting rule. If the purchase price and internal bank estimate do not match, the bank always sets the lower of the two values for mortgage lending.