How does leasing affect the affordability of a mortgage?

The leasing effect on affordability

A private lease directly reduces the gross income that can be deducted from the mortgage. Banks subtract the total annual lease costs (monthly rate x 12) from your gross salary in advance before applying the 33 percent affordability rule. Since banks expect an imputed interest rate of 5%, a monthly leasing installment of, for example, 500 francs will reduce your maximum mortgage amount by around 100,000 to 120,000 francs.

The imputed lever: How banks calculate

To understand the exact influence of leasing on your dream home, you have to look at the mathematical logic of banks. The basic rule of affordability states that the imputed costs of the property (interest at 5%, service charges at 1% and amortization) may consume a maximum of one third of the gross income.

If there is a leasing contract, the bank uses the following procedure: It calculates the annual financial burden of the vehicle. For example, if the monthly leasing rate is 600 francs, this results in a fixed annual commitment of 7,200 francs. This amount is now deducted directly from gross salary.

For example, if an applicant earns 120,000 francs gross per year, the relevant income for the bank shrinks to 112,800 francs as a result of the leasing. Since only 33 percent of this reduced amount can be spent on property costs, the maximum allowable budget for the mortgage is drastically reduced. Leasing therefore acts as a negative lever on the maximum loan amount.

A calculation example: car vs. dream house

A direct comparative example shows how much this deduction limits purchasing power on the real estate market. We accept a married couple with a joint gross income of 150,000 francs.

• Scenario A (without leasing)
• Eligible income: 150,000 CHF
• Maximum permitted imputed housing costs (33%): 49,500 CHF/year
• This results in a maximum possible mortgage of around 720,000 CHF.
• Scenario B (With a lease of 700 CHF/month)
• Annual leasing costs: 8'400 CHF
• Adjusted gross income for the bank: 141,600 CHF (150,000 - 8'400)
• Maximum permitted imputed housing costs (33%): 46,728 CHF/year
• This only results in a maximum possible mortgage of around 680,000 CHF.

In this realistic scenario, the supposedly affordable leased vehicle means that the couple suddenly receives 40,000 francs less credit from the bank when buying a house. If the purchase price of the dream property is exactly at the limit of its financial capacity, this difference can completely bring down the project.

ZEK query: Why concealment is pointless

Some prospective buyers come up with the idea of simply not mentioning the leasing in the credit conversation, as it is done through a separate account or another bank. This is an absolutely hopeless endeavor in Switzerland.

Every legal consumer credit and leasing institution in Switzerland is required by law to report existing contracts to the Central Office for Credit Information (ZEK). As soon as you submit a financing request for a mortgage to a bank and sign the corresponding declaration of consent, the credit specialist presses the button and sees your complete ZEK statement. Not only are the current contracts stored there with the exact monthly installment, but also the historical payment history (whether installments were paid on time). In the worst case, concealing such an obligation leads to an immediate loss of trust and the rejection of the mortgage application.

Strategies for car lovers before buying a house

Anyone who notices that the affordability of the mortgage is shaking due to the vehicle has various options for resolving the situation before the notary appointment:

• Dissolve the lease early: This is often the most effective, albeit the most expensive option. The leasing contract is settled early, the car is either returned to the dealer or (if liquid assets are available) is bought out in full at the residual value. If the monthly installment is omitted, the leasing company deletes the entry with ZEK, and the full income is available again for affordability.
• Transfer the contract to another person: If the lease is carried out by a partner who is not in the land register and whose income is not credited for the mortgage anyway, a contractual transfer (if the leasing company agrees) can relieve the main buyer's affordability.
• Bring in more equity: If the maximum mortgage amount falls by 40,000 francs as a result of the leasing, this gap can be compensated one-to-one by bringing in additional cash (e.g. through an interest-free loan from the parents or an advance payment of an inheritance).

Conclusion: Set priorities for a major home project

In the Swiss financing system, private leasing is not a knock-out criterion for a mortgage, but a brake block that you have to calculate precisely.

In summary, anyone planning to buy a property in the next one to two years should, if possible, refrain from concluding a new, long-term leasing contract for an expensive vehicle. The priority should clearly be on the dream home. Existing contracts should be analysed well in advance of the bank discussion. It is often strategically wiser to buy the car temporarily in cash or drive a cheaper second-hand model in order to secure maximum financial leeway to negotiate your own four walls.

Credit check glossary

• Consumer Credit Act (KKG): The Swiss federal law, which is intended to protect consumers from over-indebtedness. Among other things, it regulates the strict awarding and reporting requirements for personal loans and leasing contracts.
• ZEK (Central Office for Credit Information): The Swiss evidence center for credit information. It registers all credit, leasing and credit card activities of private individuals and serves banks as a primary source of audit.
• residual value: The contractually estimated value of a leased vehicle at the end of the regular term. For this amount, the car can often be purchased after the lease expires.