Which equity to mobilise to finance your property purchase in Switzerland?

In Switzerland, obtaining a mortgage loan for the purchase of a primary residence necessarily involves injecting equity. This equity must represent at least 20% of the property’s value, of which 10% cannot come from occupational pension savings (the 2nd pillar). So, what equity can be mobilised to finance the purchase of your Swiss property? FGP Swiss & Alps guides you through the process.

How does equity work in the context of a mortgage loan?

In Switzerland, it is customary for the bank to lend 80% of the amount required to purchase a property intended for own use. This loan is divided into a first-rank mortgage (around 65% of the property’s value) and a second-rank mortgage (around 15%). The remaining 20% represents the “equity”: the capital that the buyer must personally contribute to finance the project.

These 20% equity funds are mandatory. They are divided as follows:

• At least 10% of the equity must come from savings or other sources of financing, sometimes referred to as “hard equity”.
• The remaining 10% can be drawn from the 2nd pillar (occupational pension savings).

Note: to these 20% you must add funds to cover notary fees, which depending on the canton range between 3% and 5% of the property’s value. Concretely, this means you must be able to inject up to 25% of the borrowed amount to obtain a mortgage loan.

What are the sources of equity?

In the context of a Swiss property purchase, the question of equity inevitably arises. Where can you find the necessary sum, namely the 10% that cannot come from occupational pension savings? The good news is that several sources can be mobilised to reach the required amount. Below are the main options – but remember: these solutions are valid only for the purchase of a property intended for personal use.

Your personal savings

This is the most obvious source of equity: the money you have set aside over the years. These funds may be sitting in a current or private account, a safe, or even traditional savings. However, it is advisable not to commit all of your savings to your mortgage: always keep a reserve to cover unexpected events.

Your individual pension plan 

The capital of your individual pension savings may be used to strengthen your equity in the context of a mortgage application. The law allows you to draw on pillar 3a to finance your primary residence. Funds placed in a pillar 3b can be used freely.

Keep in mind that withdrawals from the 3rd pillar are taxed, and it is important to progressively replenish this capital, which will be needed at retirement. Alternatively, you may also pledge (nantir) the capital without withdrawing it.

A loan granted by a third party

A loan from a third party may also help increase your equity. This could be from a family member, a friend, a colleague, or even your employer. The condition is that this loan must be interest-free and without an amortisation deadline; otherwise, the borrowed amount would be considered debt and included in the bank’s assessment of your borrowing capacity.

A donation or advance on inheritance

To help their children become homeowners, many parents agree to boost their equity by providing funds either as a donation or as an advance on inheritance. However, the sum donated or advanced may be subject to taxation depending on the degree of kinship and the canton.

Your life insurance

If you hold a life insurance policy, you may redeem all or part of it to reinforce your equity. For this to be worthwhile, the surrender value must be attractive. It is also possible to pledge the policy instead of redeeming it.

Your financial assets

Your equity can also come from your portfolio of financial assets: shares, bonds, investment funds, or securities. These may be sold when their market value is high, or pledged under the principle of a Lombard loan.

Another property or a plot of land

If you own another residence or building plot, this real estate asset can be pledged as equity. The bank will consider its market value when calculating your personal contribution.

An increase in an existing mortgage

If a relative owns their home, they may request an increase in their mortgage and pass on to you the amount representing the difference between the new and old mortgage. Be cautious: this operation has a direct impact on their interest rate.

Your valuables

Jewellery, gold and other precious metals, valuable furniture, works of art… Selling or pledging these objects may help you increase your equity.

Personal construction work

If you have skills in construction or renovation, the value of personal work carried out in the acquired property may be accounted for as part of your personal contribution.

How to release occupational pension savings?

As explained earlier, 10% of the equity must come from occupational pension savings (2nd pillar). However, the use of this savings is strictly regulated. To release it, you must meet several conditions:

• Have accumulated a minimum of CHF 20,000.
• Obtain your spouse’s consent if you are married.
• In case of resale before retirement age: repay into the pension fund the capital withdrawn at the time of the mortgage loan.
  

Another condition is age: if you are over 50 when applying for a mortgage, you may only use the amount available at age 50, or half of the amount held at the time of application.

There is also an alternative: pledging the 2nd pillar funds instead of withdrawing them. In this case, you may borrow up to 90% of the property’s value. The advantage is that the capital remains in the fund and continues to accrue interest. However, this option is generally reserved for high-income earners.

Finally, note that some professions do not have compulsory occupational pension schemes: entrepreneurs, artisans, self-employed professionals, and liberal professions. In such cases, the 10% requirement from the 2nd pillar can be replaced by a mortgage surety subscribed through a cooperative – though this often entails significant costs.You now know which sources may be mobilised to form your equity, and thereby unlock your mortgage loan. Finally, note that it can be advantageous to inject more than the required 20% into the mortgage: this is a particularly effective lever for negotiating a more favourable interest rate.