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PROPERTY

EXPLAINED: How to save on your mortgage in Switzerland

Buying a home will be one of the biggest financial commitments any of us face. Here's how to save on a mortgage in Switzerland.

Published: 15 February 2022 16:03 CET
Taking out a mortgage in Switzerland? Here's how you can save. Image: Pixabay
Taking out a mortgage in Switzerland? Here's how you can save. Image: Pixabay

As the only country in Europe where more than 50 percent of people rent their home, Switzerland has the lowest home ownership rate on the continent. 

This is due to a variety of factors, including strong tenancy laws, culture, cost and a scarcity of land. 

There are some however who are keen to buy their own home – and evidence suggests this number is growing. 

READ MORE: Why do so many Swiss prefer to rent rather than buy their own home?

While having enough cash is an important starting point, there are also a range of other factors to be taken into consideration. 

Here are some tips for mortgages in Switzerland. 

Give yourself time – more time than you think you need

Buying a home will be one of the most important and consequential decisions you ever make, so give yourself plenty of time beforehand. 

Speak to other people who have bought homes recently and several years ago. 

Get to know the relevant terminology for your part of Switzerland so that you know what you are talking about. 

For instance, what was a LIBOR mortgage – and what is a SARON mortgage – and how has the latter replaced the former?

A low interest rate is great, but can you pay the mortgage off early. If not, you may end up costing yourself a whole lot more. 

Is the interest rate fixed or variable? And if it is variable, what happens when rates rise?

Below are just some general tips to consider, but remember that you can never investigate too much. 

Check out the following link for more specifics on the costs of buying a home in Switzerland. 

EXPLAINED: The hidden costs of buying a home in Switzerland

Is taking out a mortgage to buy a home in Switzerland a good decision?

Interest rate rises haven’t quelled rising demand for properties, nor has the impact of the pandemic.

Speaking with Swiss news organisation Tamedia, property expert Patrick Schnorf said demand is set to continue.

“We assume that due to immigration, high birth rates and household divisions, demand will remain the same in the near future,” Schnorf said.

“People have saved a lot (during the Covid pandemic), many have a secure income, these are the driving factors,”

In fact, the Covid pandemic has not dampened demand, but has channeled it towards a different type of property.

Larger properties with more rooms and gardens have seen greater demand as a consequence of lockdowns and working from home requirements

“The radius of the real estate search has therefore also extended to the surrounding rural regions,” explained Schnorf.

READ MORE: What does the coronavirus mean for Switzerland’s property market?

While lockdowns look to be over and the working from home rules have come to an end, experts argue that some of these changes are more than mere trends and are likely to be permanent.

What types of mortgages are there in Switzerland? 

There is a relatively wide array of mortgages on offer in Switzerland, but here are some of the main ones. 

Not unique to Switzerland is the fixed-rate mortgage, where you pay an agreed rate on your mortgage over a set period of time. This is the case regardless of interest rate trends. 

Also not unique to Switzerland is the variable mortgage, where rates are subject to market fluctuations. 

Comparatively unique to Switzerland is the SARON (Swiss Average Rate Overnight) mortgage. 

The SARON mortgage replaced the LIBOR mortgage (London Interbank Offered Rate) at the start of 2022. 

The interest rates for SARON mortgages are variable and are calculated on the basis of the SARON reference rate. 

The SARON reference rate takes into account actual transactions in the Swiss money market (unlike the LIBOR rate which was calculated on the basis of recommendations from a handful of banks) and is therefore believed to be more transparent. 

Know and understand Swiss deposit rules

Before you even begin thinking about buying a home, you need to know that higher deposits are required in Switzerland than many other countries. 

The minimum deposit in Switzerland is around a fifth (20 percent) of the total purchase cost. 

This is much higher than the five percent often seen in English-speaking countries, but it’s much lower than the 40 percent sometimes required in Germany. 

While you might have just felt your home ownership dreams disappear with a whoosh, only half of that 20 percent figure should come in cash. 

The other half can come out of equity. 

It can also come out of your pension fund – although if you’ve only recently arrived in Switzerland, you might not have that much cash stashed in there. 

READ MORE: Can foreigners buy property in Switzerland?

Switzerland has low interest rates – but be aware of fluctuations 

Swiss interest rates have been low for years, creating an ideal situation for anyone wanting to borrow money to get onto the property ladder. 

But just because something has been a certain way for a while doesn’t mean it will stay that way – and even a quarter of a percent increase in interest rates can have significant impacts on the average mortgage. 

Inflation has already hit highs in Switzerland – and more appears to be on the way. 

READ MORE: How to protect your savings against inflation in Switzerland

In January 2022, several financial institutions announced that mortgage rates were on the rise due to a likely rate increase from Switzerland’s National Bank. 

That said, interest rate hikes are not necessarily permanent – but be sure to incorporate scope for rate fluctuations into your budget. 

Don’t just stick to banks

It might sound counter intuitive, but avoiding banks might help you save on a mortgage. 

Insurers often have competitive rates for mortgages that beat out what the banks have to offer. 

Generally speaking insurance companies offer fixed term mortgages and interest rates are lower than those offered by the banks, although you may need to commit to a longer term. 

To sweeten the deal, insurers will often throw in discounts on other insurances, i.e. life insurance or home and contents. 

They will not allow you to use your pension funds as equity, which means you’ll need more cash for a deposit. 

Insurance companies also have a range of other rules related to amortisation, loan to value ratios, etc, which are more strictly enforced – so getting a mortgage with an insurer can be more difficult. 

Some insurance companies offering mortgages in Switzerland include Allianz Suisse, Axa, Baloise Bank SoBa, Generali, Helvetia, Swiss Life and Zurich.

Go online

Another cheaper option in Switzerland when it comes to mortgages is to go online, either through an online-only mortgage from a bricks and mortar bank or an online-only financial institution. 

So-called ‘neo banks’ have sprung up in recent years, which offer the services of regular banks but do not have any branches or locations. 

All account management is done online, which allows them to save money, while the costs of rent and locations are also spared. 

EXPLAINED: Which banks are best for foreigners in Switzerland?

Swiss financial agency Moneyland notes that those who opt for online mortgages tend to be savvy and more aware of their rights than others, which is at least in part because these mortgages tend to include less frequent consultation (thereby saving on staff costs). 

Online mortgages will usually be offered by larger banks or financial institutions through associate or other companies. 

While the source of the funds might be the same – i.e. an online bank connected to a bricks and mortar bank both offering mortgages – they will often use a different name so as to not cannibalise on their main offerings. 

Some online mortgage options include eHypothek, Homegate, Hypomat, Migros Bank and several cantonal banks. 

Please keep in mind that this was written as a guide only and should not take the place of qualified financial advice. 

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OPINION AND ANALYSIS

OPINION: Switzerland is a better place than 20 years ago, but much can still improve

From attitudes towards foreigners and improvements in work-life balance, Clare O'Dea examines how Switzerland has changed over the last 20 years and how it hasn't ('the Swiss still don't know how to queue'). Her new book All About Switzerland is now available - details below.

Published: 18 May 2024 10:49 CEST
Updated: 18 May 2024 14:45 CEST
OPINION: Switzerland is a better place than 20 years ago, but much can still improve

In the 20 years that I’ve been writing about Switzerland, I’ve tended to focus on one part of the picture at a time. Standing back from the canvas, I can see that there has been a pretty positive evolution in the country over that time.

The change has happened in measurable ways – an extra 1.6 million inhabitants, for one thing – but also in ways that are difficult to define. What I notice is more tolerance, more questioning of the norm, and more focus on fairness.

Some of this has come about through facing up to the wrongs of the past, whether that’s the historical abuse of children in the care system, the denial of the vote to women for so long (until 1971!), or the seizing of dictators’ assets.

Although it takes a painfully long time, mistakes and injustices do eventually come to light and there has been an appropriate reaction of self-recrimination and reflection towards these wrongs, and a willingness to make amends. All this has made Switzerland a better place.

READ ALSO: Are foreigners to blame if they find the Swiss unfriendly?

The foreign factor

When it comes to foreigners, there has definitely been in a positive change in attitudes towards immigrants from the countries of the former Yugoslavia. I detected very strong prejudice against this group in my early years in Switzerland. The second generation has now grown up here and found their place in all walks of Swiss life.

Unfortunately, asylum seekers have borne the brunt of xenophobia in recent years, with the notable exception of Ukrainians fleeing Russia’s war of aggression, who were granted special treatment. Switzerland has welcomed more than 80,000 Ukrainians since 2022, about a quarter of whom have since left the country.

Several cantons, notably Neuchâtel, have led the way in extending more rights to foreign residents and making it easier for them to integrate or obtain Swiss nationality. But naturalisation rates are still low, which is a pity for the Swiss, if only they would realise that.

When I first came to live in Switzerland from Ireland, I benefitted from the newly-valid agreement on the free movement of persons with the EU and EFTA countries. Since then, hundreds of thousands of Swiss and EU/EFTA nationals have been free to move countries for work, adventure, love or retirement.

Those immigrant workers have been a boon to the Swiss economy, which has one of the highest levels of GDP per capita in the world. Travel wise, Switzerland is well and truly integrated into Europe, joining the Schengen Area in 2008.

OPINION: The true signs you are becoming more Swiss than the Swiss

Family matters

Just this week, my twin daughters, who are Swiss citizens, received their first ever ballots for the next federal and cantonal votes on June 9th. Apart from reminding me of the fact that foreigners in Switzerland are largely excluded from the democratic process, this landmark also reminds me of how times have changed in relation to maternity rights.

It is hard to believe that Swiss women did not have statutory paid maternity leave until 2005. Voters had rejected the notion that women should have guaranteed paid leave after giving birth on four previous occasions – 1974, 1984, 1987 and again in 1999.

For all those years, maternity benefits were left up to employers to dictate, which was clearly not enough protection for all mothers. Today, new mothers are entitled to 14 weeks statutory leave but most employers offer more than that. Since 2021, fathers in Switzerland have been entitled to two weeks paternity leave.

There’s definitely room for improvement in the area of work-life balance for families, and there are some ideas in the pipeline, including state subsidies for childcare. With a fertility rate of 1.39 births per woman in 2022, Swiss-born babies is not where population growth is coming from.

Taking turns

One issue that seems almost unfixable in Switzerland is the high cost of healthcare. The country has the second most expensive system in the world, after the United States. Most of the cost is shouldered by households, directly or indirectly.

Whatever about the cost, the care itself is excellent and relatively well staffed. With one in three healthcare workers holding a foreign diploma, including a large proportion of cross-border workers the system is heavily reliant on non-nationals.

On June 9th, Swiss voters will get to decide on two people’s initiatives, both of which aim to curb the cost to consumers. My impression in the past was that the Swiss were reluctant to vote for freebies for themselves. But this may be the right timing for these proposals, considering that voters accepted an initiative in March of this year to increase the state pension by 8 per cent.

When it comes to daily life in Switzerland, politeness and order is the rule, with one exception – the Swiss still don’t know how to queue! I had this experience just the other day waiting outside a small museum that was only letting in a few people at a time. If you can cope with that fundamental flaw, the rest is easy.

All About Switzerland

A dynamic, up-to-date guide to Swiss society and current affairs, All About Switzerland ebook features a selection of 29 articles by Clare O’Dea. The articles were first published by The Local Switzerland from 2022 to 2024. The ebook is available on Amazon, Kobo and other retailers.

 
 
 
 
 
 
 
 
 
 
 
Photo: Charly Rappo

Originally from Dublin, Clare O’Dea has lived in Switzerland for two decades. Author of fiction and non-fiction, Clare has had a varied media career in Ireland and Switzerland, with a stint in Russia. She has contributed articles to The Local Switzerland since 2022. Her new book All About Switzerland: Selected articles from The Local Switzerland is Clare’s fourth and is available as an e-book online.

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