How solid are your finances?

Anyone who wants to purchase residential property must first determine how much he is able to spend on it. It's important not to stretch yourself out to extreme limits and not to incorrectly budget so there's no money for holidays or personal pleasures.

Equity participation

For a mortgage loan you need 20 per cent equity participation. For your own financial resources you can count not only your savings but also securities, land ownership or funds from 2nd pillar (company run) or 3rd pillar (individual) pension plans, and all this generally as a pledge or as an advance withdrawal.

What are the rules for affordability?

To cover mortgage interest, repayments (amortisation) as well as ancillary and maintenance expenses (= living expenses), given 20 per cent equity participation you can expect on the order of 6 per cent of the purchase price each year.

In other words, if a piece of property costs CHF 900,000, you need at least CHF 180,000 equity participation and then must expect CHF 43,200 for annual living expenses. According to banks, these expenses must not exceed more than a third of your gross income, so you must earn CHF 129,600 annually.

Above all, beware of overly optimistic calculations which sometimes appear in adverts because mortgage rates can increase. Even then, you must be able to carry your property.

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