The conditions for receiving your real estate loan
As you probably know, there are two steps on the way to your loan to make your purchase a reality. But which ones exactly?
As you probably know, there are two steps on the way to your loan to make your purchase a reality. But which ones exactly?
1. Equity (or equity capital, personal money)
The rules are relatively simple: 20% of the purchase price of the property must come from your personal savings for your main residence. The rest can be financed by an institution. For second homes or rental properties, you must be able to contribute at least 25% of the price. You must therefore rely on:
Your bank accounts
Your investment accounts
A potential advance on inheritance/estate
Your accounts and policies 3a & 3b
Your 2nd pillar pension savings: your Occupational Pensions Act (OPA) assets (only to finance your main home. The 2nd pillar cannot be used to finance a second home or a rental investment).
In many cases, most of the savings you need are held in your 2nd pillar account. For this reason, the Swiss Financial Market Supervisory Authority (FINMA) [Eidgenössische Finanzmarktaufsicht in German; Autorité fédérale de surveillance des marchés financiers in French] has imposed important restrictions on its use. If you want to withdraw from your 2nd pillar account, you must be able to give backing to at least 10% of the value of the property, i.e., half of your equity – excluding your pension funds.
In that report, we will spend some time analyzing and determining what your sources of equity are and how you can best optimize them.
2. Creditworthiness
In addition to the constraints on equity, we need to make sure that your household income can bear the projected expenses of your future purchase. A simple calculation is used by all financial service providers to assess how much you can borrow. This calculation enables us to provide a reliable estimate of the maximum value of your future property.
The fiscal impact of your real estate purchase
As strange as it may seem, a real estate purchase is going to, in many respects, change your tax return. These changes may have a significant impact on your household finances in the long run.
As strange as it may seem, a real estate purchase is going to, in many respects, change your tax return. These changes may have a significant impact on your household finances in the long run.
1. Your wealth
There are several changes to your taxable capital:
- The property tax:
Since you’re going to own bricks and mortar, you’ll have to declare this possession in your tax return and pay tax on its value as estimated by the tax authorities – the so-called property tax [Liegenschaftssteuer in German; impôt foncier in French]
- The mortgage:
The amount you borrow to partly finance your property can be entirely deducted from the value of your taxable assets when you fill in your tax return
- Your equity:
20% of the purchase price must be raised from your own capital. These funds will no longer be in your possession and will therefore no longer be declared in your tax return.
2. Your taxable income
You must add new charges and deductions to your tax return when you become a landlord:
The imputed rental value [Engenmietwert in German; valeur locative in French]:
This is a value calculated by the tax authorities and it most often correlates with the assessed value for a property. The imputed rental value is approximately the rent that would be payable on the property if it were leased on the open market.
Mortgage interest payment:
When a mortgage is taken out, a rate is contractually fixed. This rate will be used to pay the financial institution that granted you the loan. For your part, you will be able to deduct all these expenses from your taxable income.
Maintenance costs:
All cantons allow a deduction for maintenance costs. In most French-speaking cantons, this deduction will depend on the rental value and date of construction of your property. The deduction may vary between 10% and 20% of the rental value. If the maintenance exceeds this flat-rate, you may claim these additional expenses with supporting documents.
Payment in instalments [amortization in the US and repayment mortgage in the UK]:
This rule of law stipulates that the owner must hold a minimum of 34% of the property’s value for 15 years after the purchase of the property. It allows to repay annually part of the mortgage in a direct or indirect way.
Impact on purchasing power
A real estate purchase will inevitably have consequences on the way you spend your money. But how?
A real estate purchase will inevitably have consequences on the way you spend your money. But how?
- Personal savings
You can’t boil down the impact of buying a property to paying different rents. Being a landlord also means giving up a part of your disposable income so that you can invest it in your property. This will have consequences on how much money you can spend on your daily activities.
We’re going to guide you through this planning process by comparing your current situation with the one following your purchase.
- Wealth
Let’s look at your real estate project not as being a family home but as an investment product.
Then, we’ll be able to assess the financial potential of your property in the long run. Once you sell the property, you receive the entire capital gain even though you initially only invested 20% in it. In other words, your bank pays most of the cost and only gets it back when you sell your property. In case of price increase, you are the outright winner.
Despite the current state of uncertainty the real estate market is facing, we have yet to see a reduction in prices. For years, if not decades, prices have tended to rise – that’s why we can never assure you it’ll stay that way; but we can guarantee you one thing: if you want to carry out a real estate project, you got to believe in this market!
Determining what the best scenario is
If you want to optimize the purchase of a property in light of your situation, you’ll have to come to a couple of decisions.
If you want to optimize the purchase of a property in light of your situation, you’ll have to come to a couple of decisions.
- What type of amortization should you choose: direct or indirect?
- What type of mortgage you should take out: SARON or fixed, and for how long?
- What funds should you provide to raise the requisite 20%?
- Pledge or withdraw your pension assets: OPA & 3rd pillar accounts?
- Engaging with a bank or an insurance company?
- And above all, is it still advantageous to become a property owner today?
We'll go through all these points in our analysis and refine the results to bring you the right answers. Afterwards, you'll know the ins and outs regarding your real estate project. You should have a clear idea of the economic and fiscal impacts of your purchase.
And eventually, you’ll be able to make the best decision.
Let FBKConseils analyze your real estate project!
1. Our first meeting!
Our first meeting is always free of charge. Our goal is to meet you (in person or by videoconference) to discuss your needs and your situation face to face.
2. Let’s gather information!
In order to carry out our analysis, you’ll have to provide us with a lot of information, or at least with the assumptions that you wish to start from. This will allow us to make an impact study of a real estate purchase that’s as precise and realistic as possible.
3. Let’s study your case!
Once you’re clear about your situation, your project, or simply your expectations, we’ll start studying your case – including not only your credit report/creditworthiness and the means to achieve it, but also the possible scenarios that can be considered in your case (percentage of equity that can be provided, optimal type of amortization, etc.), and the fiscal aspects. Moreover, you’ll also get a long-term comparison.
4. Let us show you the results!
Following the analysis we make of your situation, we’ll schedule a follow-up meeting to show you the results we got, as well as the different scenarios we can consider. Changes can be made, or new hypotheses put forward.
5. Potential project follow-up!
Following this study, if you wish to concretely carry out the project of buying accommodations, we can, if you wish, help you with the various formalities and assist you in creating your mortgage application file, as well as financing your project.
How long does it take us to carry out this analysis and how much does it cost?
What takes most of our time and attention in this process is to analyze your data and to ensure that we understand what you are looking for.
As soon as the first part is done, we can perform and provide the analysis in less than 5 working days, and once it’s ready, we’ll schedule an appointment either in our offices or by videoconference so we can show it to you.
The price of this analysis starts at CHF 500 and goes up to CHF 1,500, depending on the complexity of your situation and the number of scenarios you wish to study. This includes information gathering and processing, as well as typing up this report, and of course the time it takes to present it.
A few months ago (until February 2022) I would have told you to pay much less rent. Since 2023, I will tell you rather to invest in real estate. Indeed, the cost of debt is now almost equivalent to the market rent.
Renting works on the basis of price per m2 of rent. Depending on where you live, you have to work out if you’re above or below the average price, so take your net annual rent and divide it by the number of square meters, then check the prices in your area.
You got lucky if you signed your mortgage deed between 2020 and the end of 2021! If you signed your contract before 2020 or after 2022, you might not have got the deal of the century. Other than comparing different financial institutions, there’s not much more you can do. Over the past 2 years, mortgage rates have fluctuated sharply upwards and downwards.
A variable rate mortgage can be stopped and changed quite easily. A fixed-rate mortgage is taken out for a specific period, thus it’s difficult to change institutions or conditions before the end date of the contract. Premature termination of a contract can result in heavy penalties.
[Engenmietwert in German; valeur locative in French] This is an estimated value equivalent to the imputed rental value of your property if you were leasing it on the market. In the vast majority of cases, this notional income will be determined on the basis of a questionnaire and will be used, almost exclusively, by the tax authorities to increase your household's taxable income according to the size and specific characteristics of your new acquisition.
[Steuerwert in German; valeur fiscale in French] The tax value is the value that must be entered on your tax return when you declare your property. This value is generally (unless you have made a very, very good deal) below the sale price. Each canton decides how best to assess this value. On average, it is between 60% and 70% of the purchase price.
