Property mortgages

Accomodation, House and Garden
21
I would be interested to hear / read any experiences members of the forum have personally had buying here in Switzerland.

We are probably going to start looking towards the end of this year, with a (vain) hope of being able to find something & completeing a transaction circa September 2008 (God I'm integrating).

I have heard some horror stories & also some deals that went swiftly & smoothly, so would be good to get a real discussion on this to get a good feel for whats in store.

22
You might want to look at this thread:

[[Ins and Outs] Buying Property in Switzerland](http://www.englishforum.ch/other-general/1332-ins-outs-buying-property-switzerland.html?highlight=property)

23
I keep hearing various rumours that the Eigenmietwert is going to be abolished, does anyone know if this is the case? I've heard the rumours for many years now and so I'm sceptical. If they did then this may make the housing market a little more active as the tax breaks would be higher. Or am I missing something?

To answer Polorise. I built a house with a loan from the bank. In my particular case this became a bit of a full time task as you really had to control costs. There are so many things that will raise the cost of building but not necessarily the final value. If you are working on a tight budget then this can really have an impact on the amount of capital that you have to personally bring in to the project.

24
I've just had my Eigenmietwert done on my 2006-built property.

Did they not vote on this a year or two back? Because I guess it counters the tax breaks on the mortgage interest.....

25
Hi, What is Eigenmietwert? I live in Romandie so terms in German are unfamiliar to me.

26
It is the value that your local gemeinde determines that you could gain as income from renting your property. You have to declare it on your tax form as income. So Lob is right, it counters the tax breaks that you get from having a high debt.

27
enlightened ... thx

28
We actually do pay off the loan but the process is incredibly slow. There is a general consensus that 35% is fully paid off which of course it is not and the lien remains with the bank. Given that the bank can and very occasionally does terminate the loan forthwith paying it off is not so daft. After all the tax advantage is marginal, if existent, if you include the interest payments - do the maths.

The insurance is not really that low the coverage is not high! It is only to rebuild the core or shell of the house and does not cover you for the fittings ie bathroom with gold taps etc which you are expected to cover elsewhere.

Certainly can happen and occasionally does. But this is the same as the UK or any other country - emotions do play a part and therefore you would be prepared to pay the asking price or perhaps a little more for the ideal house- the bank has no emotions and gives you a true market value. You take it or leave it.

The bank valuations do not really relate to insurance valuations at all... Insurance is a rebuild ie its the physical material and the local labour period. Bank though includes that most magic of words LOCATION and ask any real estate guy the most important thing for a property!

29
Richard,

thank you for that. You have really cleared things up for me!

Paying off Mort: Personally, I found that the calculations make much more sense if you pay off the house. If I found anything that I didn't have to stretch the budget to pay the minimum (!), I would consider doing just that. I'm glad someone agrees with me! I still think the fact most don't pay off the house keeps the market high. (They can afford more per month because they are paying back so little. If they had to pay the whole thing off in 20/30 years they wouldn't be able to afford so much per month.)

Insurance: Ok, I see, the kitchen, bathroom, etc are covered on the contents insurance. So, the insurance value is the structure... Makes sense. And now it certainly makes sense why the insurance value is never the sale value!

Thanks!

30
ACtually I do not agree with you here, that is that the market is high. If you make a comparison of the house costs here with the UK then they are low, with Frankfurt and Munich on a par with Paris low and so it goes on. It is important to realise the impact of location. Actually having a property in Zurich is more or less the equivalent of having something in central London and that is beyond the means of mortals... Do a comparison with something in Baden which would be London equivalent or Zone 2 and you have half the price - in Zone 2 it is still unpayable. You need to get out to Zone 4 in London to regularly drop below £500K and over here you would be able to afford a pretty damned big place in Aarau or Winterthur for that money.

Add to that the quality of building work (generally) in the two countries and do you still believe the price here is high?!

31
An equivelant small Apartment from personal experience from Zone 2 London to central Kreis is about 35% more expensive in London.

I think the problem here is liquidity, or lack of it.

dave

32
Exactly.

I'd say that Swiss property prices are a bargain at the moment. We certainly could not afford to move back to the UK with current Swiss-near-Zurich v. southern UK prices - and UK mortgage rates.

33
Oh, you mean the rental value.

34
You can not compare different locations/countries/cities, etc and I certainly don't do that. So, I don't mean prices are high in relation to other places. I mean higher than if the mortage was paid off. I think I explained what I mean. (Maybe not good enough). Low mortage rates & paying off over 99 years, means that buyers can pay more per month, therefore the sellers can ask more for the property.

If we had to pay the total amount off in 20/30 years, monthly payments would be much higher, less people could buy, and prices would be lower.

Anyway, this is my theory & in my mind it works! Of couse, it doesn't help me get a cheap house!

(I imagine the lack of enough properties for sale also keeps the price higher, but this doesn't fit in to my theory, thus irrelevant! )

35
Hello,

I have found this thread useful - particularly the comments from miniMia...

As one who is contemplating a "permanent" move to Switzerland, I am interested in knowing in advance the ins and outs of buying/selling my own home.

I must say, I am unconvinced at present that the typical Swiss mortgage, being primarily interest only makes any sense. (except for the banks, and perhaps the government.)

Is it possible to get a standard, UK style repayment mortgage if one wishes?

The obvious issue I have, is that if and when it comes time to sell a property, one will not get back anything near what one pays into it with this arrangement.

Am I missing something obvious?

Thanks in advance, Dan

36
You will normally be expected to make some form of amoritization each year (normally 1% per annum, so say 15,000 on a 1.5mio mortgage) and you can normally prepay without penalty easily at the end of any interest period.

Its like this because for now home mortgage interest is deductible and interest rates are low (on the other side you are taxed on the notional rent of your house!) so most swiss dont want to reduce the balance directly. They do this indirectly by saving separately to repay the mortgage later. The most tax effective way of doing this is via your 3rd pillar pension fund since then you get a tax deduction on the contributions paid.

Daniel

37
the typical mortgage here does include amortization. You have to ask for an interest-only mortgage and you might have to shop around to get it (depending upon where you bank, where you're employed and what the market conditions are like).

If you get an interest-only mortgage on a property costing 1'000'000 francs and pay only interest on the mortgage for 5 years and sell it for 1'050'000 francs, I think you will have made money - unless you figure you would have lived somewhere for free during that time?

Indirect amortization is indeed very tax-effective. Also notional rent tends to be a percentage of the considered full rentable value in the marketplace.

38
The concept of a mortgage that is not paid off is a hard one to get your head round. But look at it this way: in the UK you pay interest on the balance at anything from 5.5% upwards currently. I was paying 15% in the early 90s. Plus you are paying off the loan as well.

The majority of Swiss (70%) live in rented property and will pay rent to their dying day and will face rent increases at any time including during their retirement. With this background, the Swiss plan a little more for retirement, rather than just paying off the mortgage UK-style.

Now consider what you can borrow with the Swiss system. I have a 5 year fixed mortgage at 3.7%. This means it costs 3700/12 per CHF100,000 = CHF308 per month for each 100,000 borrowed. Or CHF3080/month to borrow a million, which you will get back on selling, plus the increase in value of the property...

39
AbFab, personally a very informative post, so thanks. On the above calculation, is that based on standard terms ? i.e. 20% downpayment ?

thx P

40
From what I have gathered, you are only obliged to pay of 1% per year. After that you CAN pay more. But most professionals* I have talked to so far say that it is more financially beneficial to pay only the minimum, as others here have said. Also, it was recommended that we pay up 40% then they pay interest only.

It's a system that doesn't compute in my limited math capacity brain... But that's what we have been recommended. Now if I could only find a house!

(Our offer on a farm house was rejected today... We now need to decide if we want to offer more or not....)

*Financial adviser, mortgage broker, real estate agents, and any other people I can convince to give me the secret ins & outs of the system.