How do Swiss mortgages work?
What fees are charged when you buy?
How much deposit do I need?
How much will it cost per month?
CHF LIBOR - Over 10 years
Low Mortgage RatesMortgage interest rates are at an all time low in Switzerland at the moment. They are largely based on the Swiss franc Libor rate, which for various reasons is currently set to practically zero!
Mortgage rates have historically have been between 4% and 6% but have tumbled in recent years to between 1% and 3%. Although this has happened throughout much of Europe, these very low rates seem likely to remain in place for far longer in Switzerland because of the Swiss National Bank's determination to keep the Swiss franc exchange rate as stable as possible (to avoid damaging exports).
During times of economic turmoil the world's investors flock to the Swiss franc as a stable currency, driving up demand, and increasing the value of the currency. That is why 3 month Libor is set to practically zero, and increasing interest rates would only make the currency even more attractive and therefore would be counter-productive to their aims.
Greece, Portugal, Spain and UK all seem to be running enormous budget deficits. Switzerland is well run and in fact running a surplus!
Long Repayment PeriodsOne surprising aspect of Swiss mortgages is that the repayment period can be surprisingly long. 50 or 100 years is very common. Life expectancy in Switzerland is high, but not quite that high. The assumption is that you will either sell up or pass on your debts to others when you die...
Cash DepositAlthough mortgage interest rates are low, finding a bank to lend you the money might not be so easy. In the UK deposits required to obtain a mortgage are (or used to be) relatively low or non-existent. In Switzerland, you need a minimum 20% cash deposit.
Most houses around Geneva cost about 2 million CHF, so that's a hefty 400,000 CHF cash required before a mortgage can even be considered. One loophole is that you may be able to access cash from your pension fund. Beware though; withdrawing that cash may in itself attract an unwelcome tax bill.
Maximum CreditThe banks will want to know that you can comfortably repay the mortgage (or at least the interest on it). Therefore, they will want proof that expected monthly costs (interest plus repayment) do not exceed 33% of joint income.
Mortgage Tranches (1er Rang/2eme Rang)And that's not all - if the bank does accord you a mortgage, it will then break it up into 2 different tranches (rangs), and apply a different mortgage rate to each tranche. The first tranche will be for a maximum 65% of the total loan and the other tranche of 15% will be at a higher interest rate, usually a whole one percent point higher...
Stamp DutyThen there is stamp duty (droit de mutation). Some is due to the canton and some is due to the commune. Canton Vaud for example charges 2.2% and most communes will want a further 1.1%. With most banks, you will be able to negotiate that these fees are added to the principal loan, but it is something you will need to check!
NotaryThe notary's (solicitor's) services don't come cheap either. Expect to pay around 0.8% of the purchase price for paperwork, legal documents, meetings, deeds etc. The price is somewhat influenced by the availability or otherwise of a legal document called a "cédule hypothécaire". This is akin to the deeds and acts almost as a "bearer bond" with a specific price allocated to the document. If this "cedule" already exists, you may save 1000 CHF or so. The bank will be hanging on to this document until the loan is paid off. Once again, try to ensure that these fees are built into your principal loan.
Major BanksThe major lending banks are UBS, Credit Suisse, Raiffeisen, Migros and the Cantonal Banks. Each has their own set of products, which confuses the market somewhat. Generally speaking 3, 5 or 10 year fixed mortgages are popular. However, beware of the penalty charges if you want to change system before the fixed period is up. The banks will tend to apply these penalties even if you are selling the property, so check before signing!
Variable rates do exist and can be much cheaper than fixed rates. The risk is obviously that the rate can rise rapidly, from what is currently a very low rate. Have a look at the Libor graph above.
Banks are in a powerful positition to dictate house values, because they will estimate what the house/apartment is worth based on rigid mathematical formulae, with the variables being land area, price per square meter, building volume and living area. When these rules are strictly applied, there is little room given to the "feel-good factor", "must-have", "love-at-first-sight", "fabulous view" emotions that generally affect buyers.
This means that the banks often won't lend what the property is worth or what a cash buyer would pay.... The result is that buyers have to find even more than the 20% deposit if they still want to go ahead with the purchase. Migros bank which often has the best rates is rumoured to be particularly prone to underestimating the value of houses.
The best advice is to try around with several different banks or possibly commission your own professional valuation.