Before viewing, before even searching: work out your purchasing potential. This is the first calculation of any acquisition — the one that sets the maximum price, targets the right properties and allows you to make a quick offer in a market where transactions move fast. Here is how banks actually calculate it — own funds, income, theoretical costs — with a complete example, worked out the way an institution would — and our mortgage simulator to test your own figures immediately.
Own funds: the foundation — and its strict rules
Standard financing requires a minimum of 20% own funds — and acquisition costs (duties, notary, land registry) are added on top of that, payable only in cash: allow around 25% of the price in total. The accepted sources are broader than people think: savings and account balances, 3rd pillar A (treated as cash), surrender values of life insurance policies, gifts or advance inheritance, interest-free loans with no repayment obligation, pledging of securities — and, for a primary residence, 2nd pillar assets. Two absolute limits: at least 10% of the price cannot come from the 2nd pillar, and for a property that is not your primary residence — a buy-to-let investment or secondary residence — pension assets are excluded and the required contribution is often higher.
Withdraw or pledge your pension assets?
The 2nd pillar and 3rd pillar A can be withdrawn — with tax on the capital withdrawn and a reduction in future benefits — or pledged: the mortgage loan is then slightly higher, but you pay no withdrawal tax and your pension cover remains intact. The choice depends on your situation, your age and your objectives: this is typically a question that warrants a specialist — each option should be calculated before being chosen.
Withdrawing pension assets incurs a tax, and it is paid in cash
A point that financing plans almost always forget to budget for. Withdrawing your 2nd or 3rd pillar A is not a neutral operation: the capital benefit is subject to a tax separate from ordinary income tax, and this tax is settled in fresh cash, at the very moment when all your liquid assets are going into the acquisition.
The good news is that the regime is favourable. The benefit is taxed separately from the rest of your income, without being added to it — that is the whole point of the mechanism. Two taxes apply, cantonal and communal tax and direct federal tax, and in both cases the canton applies the same principle: the tax rate is one-fifth of the rate shown in the ordinary scale, that of article 41 LIPP for the ICC and article 36 LIFD for the IFD.
One-fifth of the rate, not one-fifth of the tax: the scale remains progressive, and several withdrawals cashed in during the same year are added together to determine the rate. This is why a couple who withdraw two pension assets simultaneously pay proportionally more than if the withdrawals were spread over two calendar years — when the timing of the purchase allows for it, which is not always the case.
Above all, remember this for your own funds calculation: the amount your pension fund pays you is not the amount you have available for the contribution. The tax is deducted from it. Pledging, on the other hand, does not trigger any withdrawal tax — this is one of the arguments in the trade-off mentioned above, and it should be calculated before being decided.
Income: what the bank counts — and deducts
The determining income adds together everything that is stable — salaries, regular bonuses, allowances, secondary income, pensions, rental income — and deducts all commitments: monthly loan and leasing payments, alimony paid, costs of other properties. On this basis, the cardinal rule of Swiss financing applies: the theoretical costs of the property must not exceed around one-third of disposable income. Theoretical, because the bank does not calculate using the current rate: it applies a theoretical interest rate of 5% — the well-known “stress test” — plus the mandatory amortisation and 1% of the price for maintenance costs.
The full example: a villa at 2.5 million
A couple with two children are targeting a Geneva villa at CHF 2’500’000. The plan: 500’000 in own funds (20%) and a 2’000’000 mortgage (80%) — meaning, acquisition costs included, around 625’000 in funds to bring together. The bank splits the loan: a first-rank mortgage up to two-thirds of the value (1’666’666), with no mandatory amortisation, and a second rank (334’000) to be amortised over 15 years at most — and by retirement at the latest. The capacity test: theoretical interest at 5% = 100’000, annual amortisation of the second rank = 22’300, maintenance at 1% = 25’000 — giving 147’300 in theoretical costs, requiring around 442’000 in annual income. This is why the calculation is done before the search: it avoids viewing unattainable dreams — or underestimating your true potential. Work out yours in two minutes with the mortgage simulator, then refine it with a specialist.
Each bank calculates differently — and this is an opportunity
These rules are the dominant practice, not a uniform law: each institution has its own criteria — tolerance on the ratio, income taken into account, treatment of bonuses or self-employed applicants. Two identical applications can receive very different responses from one bank to another. This is the whole point of an independent mortgage broker, who knows each institution’s criteria and directs the application to the institution that will value it best — the same approach that pays off at renewal.
From potential to project
With the figure in hand, everything falls into place: the mortgage simulator to refine scenarios, our financing guide for the complete banking process, Casatax to reduce costs on your primary residence below its threshold — then the search, on the market and ahead of it, with the strength of someone who can commit: in a fast-moving market, having your financial file ready is often what gets your offer chosen. The complete purchasing process is described in our transaction guide — and technical terms in the glossary.
This article is based on a contribution from Giovanni Mastroianni, Senior Mortgage Specialist (feyn — Finest Mortgage Broker), published in March 2023. Editorial formatting: Rousseau 5. Lending criteria vary according to institution and situation; only a personalised analysis is authoritative.