Mortgages for Swiss Holiday Homes

More than two-thirds of Swiss mortgage lenders include mortgages for holiday homes in their portfolio. But holiday property mortgages follow a whole other set of guidelines than those used for primary residence mortgages.

Guidelines for holiday homes

The guidelines from industry association Swiss Banking stipulate a number of minimum requirements for mortgage lenders and homeowners. These relate to the down payment, loan-to-value ratio, affordability requirements, and the amortization of Swiss mortgages. These guidelines apply to both primary and secondary residences, as well as to investment properties. Mortgages for holiday homes and other secondary residences are required to meet these minimum requirements for approval.

Tougher regulations for holiday homes

In addition to the clearly defined mortgage guidelines, most Swiss banks and insurance companies set the bar for holiday home mortgage approvals well above the criteria used for primary residences.

That means requirements for amortization, loan-to-value ratios, and income-to-expense ratios, are stricter than those for regular mortgages. The reason for this is that the risk of default is higher for secondary residences, because in the case of a financial squeeze, borrowers will generally sacrifice holiday homes long before considering the sale of their primary residences. From the bank’s perspective, a personal financial crisis can result in holiday homes being flash-sold for prices well below their actual value.

Lower loan-to-value ratio

The maximum permissible mortgage in relation to the collateral value of a holiday home is usually lower than that used for primary residences. While the loan-to-value ratio for a primary residence is typically 80 percent, the ratio for mortgages on holiday homes is normally lower. Although there may be cases in which an 80-percent loan-to-value ratio may be used, in most cases you will only be able to mortgage between 50 and 75 percent of a holiday home's collateral value. That means that you may have to cover up to half of the property’s purchase price out of your own pocket.

Tighter affordability criteria

Affordability requirements are also tougher for holiday homes. The fact that holiday homes generally have higher surcharges than comparable primary residences makes it even harder to meet affordability criteria.

You cannot use retirement savings

You cannot use money from tax-privileged retirement savings to buy a property as a secondary residence. That applies to pension funds and vested benefits, and to the pillar 3a. So your down payment must be made up entirely of other assets.

Holiday homes: amortization

When you get a mortgage on your primary residence, you will normally have to reduce your debt to two-thirds of your home’s collateral value within 15 years, and at the latest by the time you reach retirement age. But banks are stricter with holiday home mortgages, and often require that you amortize 50 percent of the property's collateral value within that same time period. In some cases, the entire mortgage must be paid off over a limited mortgage term, or you are required to make a minimum mortgage payment every year.

Holiday homes outside of Switzerland

Mortgage guidelines for purchases of holiday homes outside of Switzerland are even stricter. Some lenders generally do not finance mortgages for properties outside of Switzerland. Others do finance foreign properties, but only in specific countries or regions. Crédit Agricole next bank, for example, offers mortgages for holiday homes in France.

Negotiate interest rates and conditions

Mortgages for holiday homes are often more expensive than mortgages for primary residences. Do not be afraid of bargaining with lenders for better conditions and lower interest rates. In many cases, the interest rates are not set in stone, and can be negotiated.

Tip: The mortgage comparison tool from moneyland.ch automatically filters offers so that you only see the offers which match the selected property type, accounting for loan-to-value requirements.

More information:
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