6 Things to Know When Buying a House in Switzerland (2022)

by James Austin

HOW CAN I BUY A HOUSE IN SWITZERLAND?

6 things to know when buying a house in Switzerland…(2022)

According to Mercer’s Cost of Living survey, Switzerland has more cities in the top 10 list of most expensive cities in the world (3) than any other country. Not bad for a nation with a fraction of the number of cities of its Asian counterpart making the 2nd spot (China).

For those living in Zurich, Geneva, Bern and Basel, rent can be a large part of monthly outgoings. It’s therefore no surprise that with mortgage repayments until recently at around half of rental costs, long term settlers to the country want to buy their own home.

But with a minimum deposit of 20% needed, a complicated mortgage system, and some of the highest house prices in the world, it can almost seem impossible.

Thankfully, it can be possible — and profitable — with a little local knowledge.

Here are 6 things you will want to know when starting the search for your new home:

1. HOW TO GET THE BEST MORTGAGE RATE There are broadly 2 options; go it alone or use a broker. To do it yourself, use an online comparison site to narrow down the lenders, then contact each one, make appointments, and gather offers. For a small fee (or no fee and commission paid to the broker by the lender), a mortgage broker can do all of this for you, as well as negotiate on your behalf to ensure you get the best deal.

2. LIBOR, VARIABLE OR FIXED RATE? As of today (May 2022), the base interest rate in Switzerland is -0.75%, and has been for 7 years! But beware — a country’s mortgage mortgage rates aren’t just based on home rates. As inflation has increased, so have lending rates in trading companies of Switzerland, which has increased lending costs here. Mortgage rates are still attractive, but time is running out. Choosing a LIBOR, SARON or Variable interest rate makes sense if you want the lowest repayments possible. However, there is no protection if rates rise, and no guarantee they will stay low. If you can afford the higher payments now, fixing your interest rate has the advantage of guaranteeing your repayments at historically low levels for up to 25 years.

3. INTEREST ON MORTGAGES IS TAX DEDUCTIBLE Mortgage interest payments can be deducted from taxable income. With the high-value loans common with pricey property, this can represent a serious saving.

4. 20% DEPOSIT DOES NOT MEAN 20% CASH In Switzerland, it is possible to purchase a new home using a mixture of cash and pensions. There are advantages and disadvantages to both, however using your pension money to finance a maximum of 50% of the deposit can allow many people to purchase sooner than would otherwise be possible, and gives significant growth advantages when combined with the right type of pension.

5. EIGENMIETWIRT/LA VALEUR LOCATIVE Homeowners in Switzerland must pay income tax based on a notional rental income, that you would receive, if you rented the property to a tenant. This will generally cancel out tax gains from mortgage interest payments and private pension contributions, and is a way of indirectly calculating property tax.

6. CAPITAL GAINS TAX To avert the same kind of rollercoaster in house prices that has affected much of the world in recent decades, a tax is applied to any profit made when a private owner sells their house — even on the primary residence. The amount varies across cantons; however, the average tax applied starts at 40% and decreases over 20–25 years of ownership (starting at 60% in Geneva and Basel!)

At Imperial Wealth Planning, we are experienced in helping expats and Swiss nationals find the best mortgage, decrease taxes and increase returns. Being independent, we have access to the major Swiss lenders, as well as international mortgage specialists.

Let us help you answer the most common questions:

1. How to get best mortgage rate

2. Libor or fixed rate?

3. Pledging 2nd pillar

4. Pledging 3rd pillar

5. CGT

6. Ability to rent out B/C permit

7. Buying a chalet or holiday home — restrictions

8. Eigenmietwirt

9. Tax deduction of interest

10. Indirect amortisation

Disclosure:

This article has not been written to give advice, and purely expresses our own opinions. We are not receiving any compensation for it, and we are not responsible or liable in our capacity as an independent financial adviser for any action taken by readers based on these opinions. For personalised advice based on these issues, please seek advice from a regulated, independent expert.