Determining the optimal financing amount

How much equity do you need to purchase your own home?

Are you dreaming of owning a home in Switzerland? For many, this dream stays just that – only 36% of the Swiss population own their home, one of the lowest levels in Europe.

This low percentage of homeowners is mostly due to the fact that the equity capital required to buy a home in Switzerland creates a significant hurdle for many. Strict equity capital requirements and high real estate prices are particularly challenging when trying to buy a home.

Nevertheless, with proper planning and the right strategy, the dream of an own home can still become a reality. In this article, we explain step by step how much equity capital you need to buy a home in Switzerland and how you can achieve this goal.

Let's find out together how you can build and use equity capital in the best way possible.

Basic equity requirements in Switzerland

In Switzerland, there are strict rules governing the financing of real estate. The most important basics are as follows:

Understanding the 20% rule

The basic rule when buying real estate in Switzerland is this: You have to finance at least 20% of a property's market value with equity. The remaining 80% can be financed with a mortgage, which is divided into a first mortgage (up to two-thirds of the purchase price) and a second mortgage.

Hard vs. soft equity

The required 20% equity can consist of:

Hard equity (at least 10%)

• Savings and current account money
• Securities
• Savings from pillar 3a
• Advance inheritance amounts or gifts

Soft equity (up to 10%):

• Advance withdrawals from the pension fund (2nd pillar)

Important: At least half of one's equity capital must consist of hard equity capital.

Special requirements for vacation homes and investment properties

Certain kinds of real estate are subject to stricter requirements:

For vacation homes, please note that using retirement funds (pillar 2 and pillar 3a) is not permitted. For investment properties, additional affordability rules apply: the bank will assess whether a positive cash flow results when using a notional mortgage interest rate of 5%.

The more equity you are able to contribute, the more attractive your interest rate conditions will generally be. We therefore recommend, where possible, to contribute more than the minimum required amount of equity.

Different sources of equity

Let us explore the different options available for raising the necessary equity for your property purchase in Switzerland. We will guide you through the most important funding sources and their specific characteristics.

Traditional savings and securities

The most conventional source of equity is your personal savings and securities. Cash savings have the advantage of being immediately available without additional risk. When it comes to securities, such as stocks, bonds, or investment funds, you have two options:

• Direct sale to raise equity
• Pledging the securities to the bank (please note: these are not accepted at 100% of their value)

Retirement funds (pillar 2 and pillar 3a)

For owner-occupied properties, retirement funds can be used as equity. With the pension fund (2nd pillar), the following conditions apply:

• Minimum withdrawal: CHF 20,000
• Early withdrawal possible every five years
• After age 50: Maximum withdrawal is limited to half of your current balance

For pillar 3a, there is more flexibility: there are no minimum withdrawal limits and no age restrictions. Importantly, these funds are regarded as "genuine equity" for financing purposes.

Advances on inheritance and gifts

For many young families today, acquiring a home is only possible with family assistance. When considering advances on inheritance and gifts, we take particular care with the following points:

Advance on inheritance:

• Must be taken into account in the final distribution of the estate

• A written agreement is strongly recommended

• May trigger compensation obligations with other heirs

Gifts:

• Can be challenged within five years

• Tax implications must be considered

• In many cantons, direct descendants are exempt from gift tax

Of particular importance: Regardless of the funding source, careful planning and professional advice are essential. Combining several sources of equity can often provide the optimal solution for your property purchase.

Step-by-step equity planning

Building up sufficient equity for a home purchase requires a well-thought-out plan. We will show you how to reach your goal step by step.

Timeline for building equity

We recommend starting to build your equity as early as possible. According to a GfK survey, every second person under the age of 30 would like to own property within the next ten years. As a concrete example: for a purchase price of CHF 1,000,000, you will need CHF 200,000 in equity.

With a monthly savings rate of CHF 600, it would take you approximately 100 months (about 8.3 years) to accumulate CHF 60,000. This timeline can be shortened by increasing your monthly contributions, exploring additional sources of funding, or by investing and making use of the compound interest effect.

Wealth creation strategies

For an optimal wealth creation process, we recommend a diversified strategy. Specifically, we rely on:

Investment solutions: The longer your investment horizon, the better you can balance potential price fluctuations. We help you develop an appropriate investment strategy that is aligned with your requirements.

Tax optimization: Skilfully combining various pension products can help you achieve significant tax advantages. One example is indirect amortization via pillar 3a, which enables you to make additional tax deductions.

Risk management: We do not recommend using your entire cash savings to buy a home. You should factor in sufficient reserves to cover unexpected expenses such as renovations or additional construction costs.

Our experience shows: Even with regular smaller payments, you can build considerable wealth thanks to systematic saving and clever investment solutions. The key to success is a combination of strategies and a long-term perspective.

Special financing possibilities

In addition to traditional financing options, there are special possibilities to help you turn your dream of an own home into a reality.

Hire purchase

One such possibility is the hire purchase, which is particularly interesting for people who currently don't have enough equity. The following particularities apply:

• Montly rent already includes a purchase component
• A later späteres pre-emptive right is included in the contract
• Rent payments are partly considered down payments

To optimally use this financing option, we recommend a careful evaluation of your own circumstances. In particular in case of cooperative models, we can benefit from loans at favorable interest rates and special promotional tools.

Risks and protection

When financing an own home, we have to particularly mind the associated risks. The average mortgage debt per capita in Switzerland is a multiple of the respective wealth. Together let us look at the most important risks and protection possibilities.

Avoiding over-indebtedness

We observe that young people between 18 and 24 years of age are at particular risk of overindebtedness. One in four of that age group lives beyond his or her means. To minimize the risk of over-indebtedness, we recommend:

• Price risk: When real estate prices fall, the mortgage can exceed the property's value
• Interest rate risk: Particularly in the case of SARON mortgages, rising interest rates can increase the monthly burden
• Income risks: Job loss, illness, or other unforeseen events can jeopardize the viability of a mortgage