Mortgage Rules for Property Buyers in Switzerland

Loan-to-value limits

Swiss banks are required to limit mortgage lending to a maximum of 80 percent of the property's value (as assessed by the bank's valuation, not necessarily the purchase price). This means buyers must contribute at least 20 percent of the purchase price from their own funds.

For investment properties and secondary residences, banks typically apply stricter LTV limits — often 65 to 70 percent. For non-resident foreign buyers, LTV limits are typically 60 to 70 percent. These limits reflect the higher risk profile of these transaction types.

The affordability rule

Swiss banks apply a strict affordability test (calcul de la capacité financière) to all mortgage applications. The test calculates the theoretical annual cost of the mortgage — using a notional interest rate of 5 percent (regardless of the actual market rate), plus amortisation of 1 percent per year and maintenance costs of 1 percent of the property value per year — and requires that this theoretical cost does not exceed one third of the borrower's gross annual income.

The use of a 5 percent notional rate (significantly above current market rates) is designed to ensure that borrowers can afford the mortgage even if interest rates rise substantially. This conservative approach means that the maximum mortgage amount is often lower than buyers expect based on current market rates.

Amortisation requirements

Swiss mortgages are typically structured in two tranches. The first tranche covers up to 65 percent of the property value and does not need to be amortised (repaid) — it can be maintained indefinitely as an interest-only loan. The second tranche covers the portion between 65 and 80 percent of the property value and must be amortised (repaid) within 15 years or by the time the borrower reaches retirement age, whichever is earlier.

Amortisation can be direct (regular repayments reducing the mortgage balance) or indirect (contributions to a 3rd pillar pension account that is pledged to the bank and used to repay the mortgage at maturity).

The bank's property valuation

Swiss banks base their mortgage calculations on their own internal valuation of the property — not on the purchase price. If the bank's valuation is lower than the purchase price, the LTV limit and affordability test are applied to the bank's valuation, not the purchase price. This means the buyer must fund the difference between the bank's valuation and the purchase price from their own equity.

In the Montreux luxury market, bank valuations sometimes come in below the purchase price for exceptional properties — particularly those with premium lake views or unique features that command a price premium above comparable sales. Buyers should be aware of this risk and ensure they have sufficient equity to cover any shortfall.

Key points

• Maximum LTV: 80% for primary residence; 65–70% for investment/secondary/non-resident
• Affordability test: theoretical cost at 5% rate + 1% amortisation + 1% maintenance ≤ 1/3 gross income
• First tranche (up to 65% LTV): interest-only, no amortisation required
• Second tranche (65–80% LTV): must be amortised within 15 years or by retirement
• Bank valuation may be lower than purchase price — buyer funds the difference