Swiss Mortgage Affordability Rules Explained

The one-third rule

The Swiss affordability test requires that the theoretical annual cost of the mortgage does not exceed one third of the borrower's gross annual income. The theoretical annual cost is calculated using a notional interest rate of 5 percent — regardless of the actual market rate — plus amortisation of 1 percent per year of the second tranche and maintenance costs of 1 percent of the property value per year.

The use of a 5 percent notional rate (significantly above current market rates of 1.5 to 2.5 percent) 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.

How the calculation works

Example: a buyer with a gross annual income of CHF 200,000 wants to purchase a CHF 2 million property with a mortgage of CHF 1,600,000 (80% LTV). The theoretical annual cost is: notional interest at 5% on CHF 1,600,000 = CHF 80,000; amortisation at 1% on the second tranche (CHF 300,000) = CHF 3,000; maintenance at 1% of CHF 2,000,000 = CHF 20,000. Total theoretical annual cost: CHF 103,000.

One third of gross annual income: CHF 200,000 / 3 = CHF 66,667. The theoretical annual cost of CHF 103,000 exceeds one third of income (CHF 66,667), so the mortgage would not be approved at this level. The buyer would need either a higher income, a lower purchase price or a larger equity contribution to pass the affordability test.

Implications for buyers

The affordability test means that the maximum property price a buyer can finance is significantly lower than what the current low interest rates might suggest. A buyer with a gross annual income of CHF 200,000 can typically afford a property of approximately CHF 1.2 to CHF 1.5 million with a standard 80% LTV mortgage — not CHF 2 million.

Buyers who want to purchase a more expensive property have several options: increase the equity contribution (reducing the mortgage and therefore the theoretical cost); increase income (e.g., by including a partner's income); or purchase a less expensive property.

Income that counts

Swiss banks typically count the following as income for the affordability test: salary income (gross, before tax); rental income from other properties (at a conservative rate); pension income; and, in some cases, investment income. Variable income — bonuses, commissions, dividends — is typically counted at a reduced rate (50 to 75 percent of the average over the last 2–3 years).

Self-employed buyers and business owners may face additional scrutiny — banks typically require 2–3 years of business accounts and may apply a more conservative income figure.

Key points

• One-third rule: theoretical annual cost ≤ 1/3 of gross annual income
• Theoretical cost uses 5% notional rate + 1% amortisation + 1% maintenance
• Conservative approach — maximum mortgage often lower than buyers expect
• CHF 200,000 income → typically affords CHF 1.2–1.5M property at 80% LTV
• Variable income counted at 50–75%; self-employed face additional scrutiny