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 Swiss banking guidelines of 2014 stipulate a number of minimum requirements for mortgage lenders and homeowners. These relate to the down payment, loan-to-value ratio, expense-income-ratio (affordability), and the amortization of Swiss mortgages. These guidelines apply to both primary and secondary residences, as well as 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 amortization, loan-to-value and expense-to-income requirements are tougher than those of a regular mortgage. 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, financial crises may result in holiday homes being flash-sold for prices well below their actual value.
Lower loan-to-value ratio
The maximum permissible loan-to-value ratio for holiday home mortgages is remarkably lower than that of primary residence mortgages.
While the loan-to-value ratio stipulated by most lenders is typically 80 percent for a primary home, loan-to-value ratios for holiday homes normally range from 50 percent to 70 percent, depending on the lender and the applicant’s creditworthiness. That means that you, as a holiday home mortgage applicant, should be prepared to fork out up to half of the property’s purchasing price as a down payment.
Tighter affordability criteria
Regulations relating to expense-to-income ratios are also tougher for holiday home mortgage applicants. The fact that holiday homes generally have higher surcharges than comparable primary residences doesn’t make meeting the criteria any easier.
Swissquote, for example, will only approve a holiday home mortgage if expenses incurred do not exceed 20 percent of the homebuyers gross income. A primary residence mortgage from Swissquote comes with a more lenient 35 percent expense-to-income ratio.
No early pension fund withdrawal
Unlike primary residences, no legal allowances are made with regards to applying pension funds towards buying a holiday home. Both employer-sponsored pension funds and privately-funded pension funds (pillar 3a) are not eligible. So do not factor in pension funds when working out how to cover your down payment.
Holiday homes: amortization
When you get a mortgage on your primary residence, you will generally have 15 years during which you must reduce your debt to 2/3 of your home’s collateral value. But banks aren’t quite as lenient with holiday home mortgages. Banks often require an amortization of 50% within that same time period. In some cases, the entire mortgage must be paid off within a pre-arranged mortgage term.
Holiday homes outside of Switzerland
Mortgage guidelines for purchases of holiday homes outside of Switzerland are even tighter. Some lenders will not take on mortgages for holiday homes abroad at all, while with others it will depend on the country in which the property is located. Crédit Agricole Suisse, for example, issues mortgages for holiday homes in France, on condition that the down payment covers at least 30 percent of the purchasing price, and assuming the mortgage can be amortized in full within a 30 year term. A holiday home mortgage from the same lender for a home purchase in Switzerland would only require a 20 percent down payment.
Interest rates and loan conditions: bargaining
Holiday home mortgages are typically more expensive than mortgages for primary residences. But don’t be afraid of bargaining with lenders for better conditions and lower charges. Interest rates aren’t always set in stone, and there is room for dealing.
Tip: The mortgage comparison tool from moneyland.ch automatically sorts offers so you see just the mortgage offers that match your property-type and loan-to-value criteria.
Swiss mortgages compared