According to Mercer’s Cost of Living survey, Switzerland has more cities in the top 10 list of most expensive cities for expatriates than any other country in the world. For those living in Zurich, Geneva, Bern and Basel, rent can be a large part of their monthly costs. It’s therefore no surprise that with mortgage repayments at around half of rental costs, long term settlers to the country want to buy their own home. But with a minimum 20% deposit, a complicated mortgage system and some of the highest house prices in the world, it can seem almost impossible. Thankfully it can be possible and profitable, with a little local knowledge — here are 6 things you will want to know when starting the search for your new home:
1. HOW TO GET THE BEST MORTGAGE RATE There are broadly 2 options; go it alone or use a broker. To do it yourself, use an online comparison site to narrow down the lenders, then contact each one, make appointments, and gather offers. For a small fee, a mortgage broker can do all of this for you, as well as negotiate on your behalf to ensure you get the best deal.
2. LIBOR, VARIABLE OR FIXED RATE? As of today (September 2016), the base interest rate in Switzerland is -0.75%, making repayments cheap and borrowing attractive. Choosing a LIBOR or Variable linked interest rate makes sense if you want the lowest repayments possible. However, there is no protection if rates rise, and no guarantee they will stay low. If you can afford the higher payments now, fixing your interest rate has the advantage of guaranteeing your repayments at historically low levels for up to 25 years.
3. INTEREST ON MORTGAGES IS TAX DEDUCTIBLE Mortgage interest payments can be deducted from taxable income. With the high-value loans common with pricey property, this can represent a serious saving.
4. 20% DEPOSIT DOES NOT MEAN 20% CASH In Switzerland, it is possible to purchase a new home using a mixture of cash and pensions. There are advantages and disadvantages to both, however using your pension money to finance a maximum of 50% of the deposit can allow many people to purchase sooner than would otherwise be possible.
5. EIGENMIETWIRT/LA VALEUR LOCATIVE Homeowners in Switzerland must pay income tax based on a notional rental income, that you would receive, if you rented the property to a tenant. This will generally cancel out tax gains from mortgage interest payments and private pension contributions.
6. CAPITAL GAINS TAX To avert the same kind of rollercoaster in house prices that have affected much of Europe in recent years, a tax is applied to any profit made when a private owner sells their house. The amount varies across cantons, however the average starts at 40% and decreases over 20–25 years of ownership.
At Imperial Wealth Planning we are experienced in helping expats and Swiss nationals find the best mortgage, decrease taxes and increase returns. Being independent, we have access to the full market of Swiss lenders, as well as international mortgage specialists. For more information, or for a free personal consultation, contact us today to find out more.
Disclosure: This article has not been written to give advice, and purely expresses our own opinions. We are not receiving any compensation for it, and we are not responsible or liable in our capacity as an independent financial adviser for any action taken by readers based on these opinions. For personalised advice based on these issues, please seek advice from a regulated, independent expert.