Good point. The problem is that most people dont have the 20% downpayment needed. In this case 300000chf. Thats the major problem in buying in my opinion

And also, what all do you need to buy a flat? I have recently found a flat for rent (the first one that I liked) in France, prepared the whole 'dossier' although it was against all my principles and it was not even considered because they wanted a physical person who will guarantee if I do not pay and who should also sign the contract. My colleague told me that she was asked for a blood analysis when she bouht a house in France. Maybe in Switzerland it is not so strict but there are surely many conditions to be fullfilled.

You also need to factor in the cost of maintaining the property.

I laughed, then I laughed some more! Marcus, I get the feeling you're living on another plane of existence.

Reka -Yeah, the WHO, TGF and many other UN angencies are cutting heads - basically getting rid of people on long-term contracts - so buying isn't an option for many people. Most people I know are on fixed-term, 2 year contracts (many of which have been renewed several times), but it;s still a huge risk to invest in property if you get chopped!

Let's not forget that home ownership in Switzerland is pretty low - around 30% - so it's pretty much unheard of to buy your own place. Whereas in the UK the rental sector is about 30%!!

Nicholas, you are right.  When you rent the landlord pays the charges.  Maintenance costs can be high in older properties, especially appartments.   An extra chf 500 to chf 700 per month is common.  With a house you have a bit more control over maintenance costs, or you could do it yourself.

Thanks sharon, I agree you shouldnt buy unless your job is secure.

*sigh* - and what do you consider a secure job in 2011? 

That I'd argue... Why ? If you pay less interests that what you pay now for rent. Even if you loose your job you still have to live somewhere while looking for a new one.

Returning to maria's point, that most people don't have the 20% down payment, it's important to remember that you can also use your swiss pension fund to make the whole or part of the down payment.  This wont be too much use if you if have only been here a year or two.  Check if you are allowed to transfer your overseas pension funds to your Swiss one to top it up before you make the withdrawal.  

Check the pension certificate given by your firm.  It should say how much you are allowed to take out for the purpose of home ownership.

Don't forget there will be notaires fees to pay as well...

Swiss property prices are quite high relative to many places where you could buy.  That's because Switzerland is a small country with one of the highest GDPs in the world.   Needless to say there are lots of people from bigger and poorer countries who would like to come and work here, both legally and illegally.  So far this has kept accomodation, especially rented, in short supply.  

If some big firms, like WHO, pharmaceuticals, and banks start to reduce staff, then it will ease the property squeeze and we could see a decline in prices.   It will be financially very painful if prices fall just when you are forced to leave the country.   However if you have to leave you could maybe rent out your property to pay the mortgage interest.

Somebody seems to have forgotten the local treat:l'impôt sur la valeur locative. (Basically the fact that you rent the flat to yourself is considered as an income and therefore a reason for a tax: welcome to the world of Swiss real estate owners!)

Not to mention that you will have to start reimbursing your loan at some point... and usually you would have to start quite immediately.

So even if you have a 50 year plan, you will have to pay CHF 2000 a month. Add that to your CHF 1875 + the impôt + the charges (locataire & propriétaire), you will probably have to pay close to CHF 5000 a month for your lodging.

Now guess why so little people own their own place here...

Hi Casuistik - your point about the imputed rent doesnt feel quite right; yes - you get charged a tax as if you were paying rent on your own house *but* you get to offset the cost of your mortgage interest payments against your income, so it becomes negligible and often a tax benefit.  Hence the reason why mortgages here go on for ever becuase the tax system doesnt encourage people to pay it off. 

Cas is correct... there are alot of costs that add up... For example on a CHF400'000 mortgage (chalet)  I pay some CHF1'700 per month for the mortgage and capital repayment, add on heating costs, upkeep, overnight resort taxes, Impot on hypothetical rental, elec etc... and its close to 2700 a month.

Not a lot you might think for a place thats now tripled in value and can sleep 11 etc blah blah blah...

BUT relative to the loan (mortgage) its high... so Imagine the costs on a loan of CHF 1m .... you should look for CHF 5000 as a conservative monthly cost...

Marcus, what do you think will happen to the local property market when LIBOR reverts to a level more congruent with the historic average?  Do you expect this low-rate environment to continue for many years?

Good point. Your debt is like a tax buster. It would be interesting to have the figures to see of how much it reduces the rent.

Loads of really good points have been made here.  It is not as simple as comparing your mortgage interest alone with the rent.

To summarise the other considerations of buying, I list them below:

Allow about 5% for stamp duty and Notary fees which you can never recuperate.

Allow for the maintenance costs or service charges, as well as insurance and any other costs absorbed by a landlord, such as depreciation and replacement of worn out items (e.g. Washing machine).

A notional rent (usually well below market), is added to your income before calculating tax.

You can deduct the mortgage interest from your income for tax purposes, but not the capital repayments.

You need to find at least 20% "fonds propres" to buy, but you are allowed to get these from your pension fund if it is big enough.

The value of the house may rise or fall.  A rise will benefit you, but a fall could leave you losing money.  If you make a profit, on the sale, you will have to pay tax on it unless you buy another house in Switzerland.

If you carry out improvements to thenhouse, they will benefit you when you sell it through getting a better price.

In addition to the interest payments you may have to make capital repayments.  These reduce the size of your mortgage and ultimately reduce the interest cost.  In the end you will have no mortgage left and be living rent free.

Be carefull about changes in interest rates.  Unless you lock in your interest rates for a fixed period, you may find yourself paying more than expected in a year or two.  20 years ago interest rates rose as high as 9%.  This is certainly not expected any time soon, but anything is possible.

Higher interest rates could make it more difficult for new buyers, thus reducing the value if you want to sell it.

Lots of things to think about....

A lot of the arguments put forward eg house prices going down, interest rates increasing are not specific for Switzerland - they are valid for purchasing anywhere. Buying to live in is less of a risk than buying as an investment.  If your property value drops, you are still paying less than the rent.  Capital payments can be reduced to a minimum.  You do not have to pay off the total in 25 years.  also at the moment interest rates are much lower in CH than in most other countries.  

Yes you have to have 20% of the property value as a down payment.  That is to cover the lender in case you get into a situation where you cannot keep up the payments and property values have gone down.  Pity that rule was not applied in the US and elsewjere where 1010% of property values were being handed out in order to boost bonuses

Banks are very helpful (at least Credit Suisse is) in explaining the situation and the real costs 

Really dabateable to what extent it's a good idea to use your pension fund money for a deposit.

I live in Neuchatel.. when i went to see my banker, i realized that the 20% is negotialble! granted where you work may help you you out. But i think all of switzerland thinks the 20% is etched in stone but its NOT!

The bank wants to make sure you wont get into too much debt...which is good.

I bought my apt last year and paid 15 %. I shoped around. Not all will consider. But remember, banks need business these days - even in Switzerland.

What about France ? 

An Expat that buys real estate in neighboring France can benefit from both Switzerland (income, tax, exchange rate ...)

and

France (mortgage, downpayment, interest rate in CHF...) 

Ok, as it's been part of my job to help people make mortgage in the last 10 years here in Geneva I guess I can try to summarize a few things ;) Most points given here are correct and the discussion is interresting but as some are a bit off, I'd recap like this:

- Yes, overall purchasing is better on a financial point of view, as the long term cost would most likely be better (maybe not on a monthly basis, but as at the end your net worth is supposed to be higher). It's not for everyone however, as not everyone can stay in the long term in the same place. I'm one of the "local" part of glocals, but many of the people here won't stay very long, and might lose money on such a purchase. Also, don't forget that family situations change (having children, divorce, etc).

- You need to have quite a lot of money aside, nearly all banks ask for 20% (there is one in Geneva doing for less, but it's a quite bad solution in my opinon), plus you've to pay the notary fees (some objects have reduced fees with "casatax"). And as stated higher, you can use the money from your pension fund for this, but not only do you need to have been there long enough to actually have some decent money there, but you'll need some cash aside anyway, even if less, because you need to pay tax when you take money from the pension fund (has to be paid on top of the withdraw of the pension fund, not from that money). Also, taking money of the pension fund means less money at retirment, in case of death or inability to work.

- You can't simply say "the mortgage rates are 2%, so it'll cost you 2% * the debt amount". We're at an all time low regarding rates (which makes it a good time to buy of course), but banks and insurance loaning you money will look if you're able to keep your property even if the rate are higher, usually taking around 5% as an historical rate. So you usually need a high income to buy most places you'll like, and for many people it's a limit.

- The marker in Geneva is far from easy, not many objects to sell, many with crazy prices, and many people looking. That's not a reason to not look into buying a property, but you've to keep it in mind.

- Switzerland is a bit different than most places, because you don't repay all of the debt but only part of it. When I explained that to expats, most of them were surprised and said something like "but, so you never really own the place?!". The reason is pretty simple: we already got much less owners than in most countries, and with the high prices of properties here it would be even much less if all debts must be repaid. Quoting Reka : ".ok, in that case you can rent it but still a 1.2 mio still to pay back will take a lifetime...." ; it's obviously not possible for most people, so you usually repay around 1% until retirement, then only pay interest on the remaining of the debt.

- Tax is an important matter. Yes, you've to pay "taxe sur la valeur locative". Basically the state estimate how much you could rend the property for, and consider it as an income (I can hear the word "unfair" from many of you readers ;) ). However you can deduct the mortgage's interest and in many case the repayment. So overall, usually it's more or less break even.

- There are of course some fees coming with owning a place, insurance, various taxes, reparations, etc. A little tip for those of you looking to buy a flat: you'll pay some money every year to basically maintain the place in good shape. Some of this money is put aside in case they need to change the elevator, the roof, the electricity system, etc. You should ask how much money is aside at the moment.

- Swiss vs France is of course a question most people buying there ask themselves. Overall, it's cheaper in France, you need a lower down payment (usually 10% but could be less), and repay all of it in 20-30 years usually, but it also mean being sometimes further from the city, harder to connect, lower quality in many constructions, etc. Also don't forger that it means taking a currency risk, as most people with CHF income will take a loan in CHF, so if the swiss franc tanks again and they need to sell, they might lose a lot of money.

I didn't re-read my (probably too long ;) ) post, but I mostly listed some problems making buying looks maybe a bit too complicated or not worth it. It's actually not the case, but it's important to know the whole situation before looking into such purchase... like any kind of purchase. Buying a house however as a bit more consequences that buying a camera or new clothes, so better be careful and informed ;)

Here's a link to easily get a rough estimation of the cost of a mortgage: http://www.bcge.ch/index.php?SubMenu=particuliers&SubSubMenu=finance&SubSubSubMenu=credit&label_x=simulateur-PH&lang=fr&commun=0&send=&step=1&site= 

It's in french, but if you don't speak any french or need some additional infos, feel free to send me a msg and I'll try to help.

Rémy

About financing the investment (in Switzerland or France), you may think of combining a direct mortgage loan with an indirect reimbursement of a second loan. If this second loan is reimbursed by an insurance plan (called 3rd pillar "a" plan), you may obtain a tax deduction on the contributions to the insurance plan and at the same time finance part of the mortgage. The 3rd pillar plan can be set up by an insurance company or a bank.

For an acquisition of a real estate in France, please note that the French banks may lend up to 100% of the acquisition price in some cases (but the French banks in Switzerland will often follow the Swiss standards and would require higher own funds).

Yes, you're of course right about the 3rd pillars (that's actually why I wrote that te repayment is in many case deductible). However, as I work for an insurance company and offer 3rd pillars products to my clients, I didn't want to go into details about this, as I didn't want that my informative post looked as someone trying to sell something ;) (and I guess my nearly 400 posts and many years here are enough to make me sound honest lol).

Regarding France, I actually already made mortgage a few years ago up to 110% (whole house + notary fees). But I didn't need to try to do it lately, and from what I know it would be much harder to get a bank doing it. But for 100%, with good enough income, it's of course possible.

Rémy

Thank you for sharing all this useful information on your domain (insurance) and much more!

From the information related to my domain (financing), it seems that French Banks located in the French side of Lake Geneva region are now raising their requirements for mortgages in CHF.

 Many of them consider that a salary in Switzerland is comfortable enough for borrowers to bring a significant initial contribution.
The time for banks financing mortgages at 110% is over.

The time for banks financing mortgages at 100% seems also counted. Currently, only 2 banks accept applications with 100% financing, under following conditions:
-          the amount of the credit is less than 300 000€;
-          the “debt ratio” (monthly payment / salary) is under 33%.
That means that the lender pays the fees upfront (notary, guaranty, application …)

French Banks are still OK for a 90% financing.

 What I understand is that, when investing in France in CHF, French banks still have a better offer than Swiss banks :
-          best interest rates in CHF
-          wider conditions (fixed rate for 25 or 30 years, caped early redemption fee, …)

But it might not last for long; indeed, with the Euro zone crisis, French banks now focus on collecting deposits instead of providing credits.

Oliver,

may you write here the names of these 2 French banks that accept to finance the 100%?

Thank you

Question to real estate and currency experts:

Would you advise taking out a swiss franc mortgage if your salary isn't in swiss francs?

Dear Translator:  Here is my answer to your question:  "Would you advise taking out a swiss franc mortgage if your salary isn't in swiss francs?"

Answer:  You are taking a currency risk.  If the Swiss Franc rises your mortgage will cost you more than you planned for.

Whenever you take out a mortgage, (or any loan), in a currency which is different from your income, you are taking a risk.  Usually when you buy a house, you are not planning to sell it.    You can't pay the mortgage from the increase in value of the house, unless you sell it.  Therefore you must finance the mortgage payments from your income.

Example:  If interest rates double, and the exchange rate doubles, it will cost you four times as much to finance your mortgage.  Can you afford that?

I have a friend from the UK who bought a Swiss holiday chalet with a Swiss franc mortgage (he borrowed 60%), and fixed the interest rate for 5 years.  His income was in pounds.  Since then, he has lost his job in the UK, and the Swiss Franc has appreciated 20% against the pound.  He is absolutely adamant that he won't sell the chalet.

The mortgage payments are costing him more, but the real killer, (from a mental "how much money do I owe" point of view), is that his debt is that much higher.  Every time he gets his mortgage statement from the bank, he finds he owes more than before due to the exchange rate.  He feels like he is getting deeper and deeper into debt.

The counter argument is that the chalet is also worth 20% more, but that is not really a relevant argument unless he actually wants to sell.

If you are renting in Switzerland, but are paid in another currency, then you are also exposed if the Swiss Franc rises, because your rent will use up a larger percentage of your salary.  Unlike a mortgage, you can walk away from a tennancy by giving notice in accordance with your lease.

In conclusion, most buyers who are paid in a foreign currency could not afford to take the risk that the Swiss Franc might rise, and therefore should not consider borrowing Swiss francs.

Most people should avoid borrowing in a currency which is different from their income. 

On the other hand, if you have liquid assets in Swiss Francs (e.g. bonds), or if you have a particularly high income, or a large fortune, a mortgage in a Swiss francs won't ruin you if the exchange rate goes the wrong way, so you may just decide to take the chance.

The short term likelyhood of interest rates rising in the Eurozone is much higher than in CH due to the SNB's need to keep the CHF from strengthening versus the €.

Equally, due to the problems in the Eurozone, I dont see the CHF weakening beyond 1.30 anytime soon... Current rate is 1.24/1.25... but it equally wont strengthen beyond 1.20 since the SNB has vowed to prevent that to protect Swiss business interests.

If youre paid in CHF and take a € mortgage, you should calculate a fluctuation in overall debt (relevant to CHF salary) of CHF1'000 per point per €100'000 borrowed when (not if) the exchange rate moves. 

CHF/€  1.24 rate means a relative debt of CHF124'000 on a €100'000 mortgage currently... at CHF/€1.26 the debt would be CHF 126'000 per €100'000 mortgage.

If you have a mortgage of €600'000 then your "relative debt" (as a CH employee) would CHF 744'000  with a exchange rate of 1.24... and CHF 756'000 if the exchange rate is 1.26..

So if the Swissy weakens your relative debt increases...

If the French € interest rate increases, so do your mortgage payments.

Be very careful calculating the "affordability band" when considering buying in France if youre paid in CHF, and give yourself some room for higher mortgage payments to avoid any short term shocks, the currency has been bouncing around alot recently.

Thanks, both of you for your answers. I imagine this might be the case for some who work at international organizations and are paid in dollars...

I also heard this recent WRS report on Hungarians who are hurting because they took out Swiss franc mortgages.

http://worldradio.ch/wrs/news/switzerland/how-mortgages-in-swiss-francs-are-hurting-hungaria.shtml

Now if only this thread was started on April 1st

As mentioned earlier in this thread, you can pledge your pension fund to fill the gap between the 80% mortgage and the 100% purchase cost of a new home.  However, please note that by Swiss law, you are not allowed to pledge more than the amount which was held in the pension fund at age 50.  

You can also withdraw funds in your pension fund (up to the amount held at the age 50) for the purpose of home ownership, but generally withdrawing funds prematurely from your pension fund is not very tax effective.  A pledge of the fund is usually a better deal in order to secure a larger loan.

Hi Marcus T

What you say is correct and incorrect:

- "by Swiss law, you are not allowed to pledge more than the amount which was held in the pension fund at age 50." OR it is possible to withdraw the half of the amount you currently hold in your pension funds. Since regular contributions into the pension funds rise dramatically in some companies and income/bonuses as well (and when you withdraw), the half might be higher than the amount at the age of 50.

- "A pledge of the fund is usually a better deal in order to secure a larger loan.A pledge of the fund is usually a better deal in order to secure a larger loan": it is sometimes a better deal to opt for a pledge.

Thought I would add our experience so far in buying an apartment in Geneva:

We were lucky and found "Federal subsidized development". We have got a reduction on the stamp duty as we plan to live there, you need to live there for at least 3 years or you have to pay the difference back.

Dramatically reduces our cost to live here as we just signed 10 year fixed on 2.1% and used indirect against pension for the capital.

Pay 870K for new 127 sq/m instead of 1.2 million so if your lucky it can work for you. Pay 20K stamp duty instead of 45K+

We plan to stay here long term so it makes sense for us, this type of property you really need to hold for at least 10 years otherwise you really lose out.

There are more of these deals to be had but you need to do your research, get on the list and when commercialisation happens you need to act fast.

It was all about reducing our costs if we wanted to stay here, rent currently 2950 per month and costs a fortune to heat. Interest payments will be around 1200 per month, yes there are extra costs to be added to that but you get the idea. We did have the 20% deposit as we sold our house in a different country so that helped a lot.

It is possible my wife spent 2 solid months, 12 hours a day to track this deal down, the fact it is 500 metres away from where we currently live is, well just carma I guess 

Just wanted others to know it is possible.

I agree with Magician's experience, and with BarbaraM : the 20% are negotiable (anyway don't expect to get it reduced to 5%).

Buying real estate in Geneva is clearly taking a risk (as well as almost anywhere else..), and as any risky investment, you can win or lose.

And yes, all things put together : taxes, mortgage, pension fund reimbursement, building co-ownership charges (eg maintenance costs of an elevator etc..), I end up paying as much I was I paid as a rent when I was renting a smaller flat.

So if you plan to stay many years in Geneva, it is possible and cheaper than renting.

We did not look at buying as an investment but more as a home where we can live and not be at the mercy of a landlord.

I would be lying if I said I do not care if financially we win or lose but the truth is it is secondary as we need a place to live first and foremost. On the financial front even if we end up paying the same as we are at the moment at least we should get something out of it at the end of the day. With money being devalued everywhere it seems a good a gamble as anything else being honest. The new apartment is much bigger and we will have proper bedrooms for the children and the heating costs have got to be cheaper. We will have underground parking and cave of which we do not currently have.

I guess at the end of next year when I do the tax return I will know better what the true costs are. 

We came to Switzerland ourselves and not on the back of some big package deal so it has been a tough journey for us but hope this move will give us enough stability for our children to grow up here.

Wish all those seeking accomodation all the best.