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Mortgages and Other Financial Issues

Switzerland - Mortgages and Other Financial Issues

Provided you meet the criteria to open a bank account in Switzerland, you are likely to be eligible to obtain a mortgage to buy a Swiss property. Almost all banks will expect you to have a minimum of 20% of the purchase price to put down as a deposit, and will offer you a mortgage of up to 80% of the remaining purchase price. Your income and existing financial assets and liabilities will determine the maximum amount you will be able to borrow. Be aware that the bank will value the property and offer you a mortgage based on that value. If, as can often be the case, the property is under-valued or you need to offer a higher price than competing buyers to secure the property, you will also have a shortfall to make up between the mortgage and the actual house price. You would normally obtain your mortgage from either one of the large Swiss banks or from a cantonal bank. If you fail to meet mortgage repayments, your mortgage lender will have the right to repossess the land and property.

You are free to shop around for a mortgage and should compare the deals and incentives that are currently available. Some banks will require you to hold a current account with them in order to provide you with a mortgage. As an alternative to the banks, you can also consider the mortgage deals offered by the financial division of the Swiss postal group, PostFinance, and the large insurance companies, e.g. Zurich Financial Services. You may be successful in obtaining a mortgage from a bank in your own country but expect to be asked for a larger deposit.

Some people have used their occupational pension (known as 2nd pillar) or private pension (known as 3rd pillar) funds as security against the mortgage rather than emptying savings accounts. You can use these or other funds to put down a deposit of greater than 20% in order to reduce the mortgage cost. It has in recent years also been possible to use the pension to reduce the 20%, but note that this situation is subject to change.

The bank will charge a fee for mortgage valuations and this will be in the region of a few hundred Swiss francs, depending on your bank. Fees for the mandatory notary services will be payable on top of the house purchase price and can add up to an additional 5% of the house price in charges. The notary will use much of this fee to pay compulsory local and cantonal property transfer taxes on your behalf, in cantons where these apply, in addition to deed registration in the Land Registry. The remainder covers the notary's time and expertise. In some cantons the seller will split the notary's part of this bill with the buyer.

From a tax viewpoint, buying rather than renting property in Switzerland can be an attractive option. Interest payments on the mortgage are permitted as a tax deductible each year. (Note: the tax year and calendar year correspond in Switzerland.) On the other hand, a property becomes subject to wealth tax. This applies whether you are a Swiss resident or a non-resident with a second property in Switzerland. The rate of taxation is very low, typically no greater than 0.3% and often much lower.

In the case of property inheritance or gifts, it is the deceased/donor who is assessed for tax, which is administered by the canton in which they reside or last resided. If a non-resident owner of Swiss property dies, the property will be subject to inheritance tax. However, property not in Switzerland will not be included in any Swiss inheritance tax assessment.

On the sale of a property, there may be Capital Gains tax to pay. This is looked at in the section on Selling Property.

You will be required to take out a buildings insurance policy for your house or other property in Switzerland, regardless of whether it is your main residence or a second home. This cover will normally have to be provided by a non-profit Public Insurance Company for Buildings (PIB), who are regulated at a cantonal level. In a small number of cantons you will have the flexibility to insure your building with a private insurer rather than a PIB, but premiums are likely to be higher. Buildings insurance will cover your property against fire, storms, and other damage from natural hazards. High winds, hailstorms and flooding are the largest area of risk. Infrequent but damaging earthquakes are also a potential threat in Switzerland and are not covered by the buildings insurance except in Zurich canton. Avalanches are covered, although those that cause damage to property are relatively rare, and restricted to certain mountainous areas.

Household contents insurance is arranged separately from buildings insurance in all but 3 cantons, and is generally optional, although if you have rented property before buying you will likely have an existing contents policy and also personal liability insurance. If you are buying an apartment in a shared building you will need to budget for an annual co-ownership charge to cover buildings and ground maintenance, insurance and utilities for the overall building, and any shared services, plus future renovations. Allow 0.8 to 1% of the purchase price each year.

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