What is the first step if I want to buy a property?

Cash flow: the foundation of your purchase plan

Why financing comes before the search

The Swiss property market is fast-moving and dry. Good properties are often only on the market for a few days. If you want to buy a property, you have to be quick. Sellers and estate agents prefer interested parties who can immediately prove that they are solvent.

Those who rush to the bank after viewing the property often lose out to competitors who have done their homework. If you are planning to buy a property, getting your finances in order beforehand gives you a decisive competitive advantage. So it's not just about what you want, but what you can afford.

The 20 per cent rule: equity

The first major hurdle when buying a property is equity. Swiss banks generally finance a maximum of 80 per cent of the lower of the purchase price and the market value estimate. This means that you must contribute at least 20 per cent from your own funds.

But not all money is created equal. If you want to buy a property, you need to know the structure of your own funds:

• Hard equity (min. 10%): At least half of the required 20 per cent must come from "real" savings. These include bank deposits, securities (shares/funds), pillar 3a assets or advance inheritance payments/gifts. These funds may not come from your pension fund.
• Soft equity (max. 10%): The second half can come from occupational pension provision (pension fund/2nd pillar). You can withdraw these funds early or pledge them in order to purchase a property.

A calculation example: if you want to buy a property for CHF 1 million, you must contribute CHF 200,000. Of this, CHF 100,000 must be "hard" capital.

Affordability: the bottleneck for banks

Even if you have sufficient savings, you may still be unable to purchase a property. The reason for this is what is known as affordability. The bank checks whether you can afford the running costs in the long term – even if interest rates rise.

The bank takes a very conservative approach to this calculation. If you want to buy a property, the bank does not use the current market interest rates (e.g. 1.5%), but an imputed interest rate of 5%. On top of this, there is approximately 1% for amortisation and 1% for ancillary costs.

The rule of thumb is that these total imputed costs must not exceed one third of your gross household income.

Many high earners underestimate this hurdle. If you want to buy a property that costs CHF 1.2 million, you need (with an 80% loan-to-value ratio) an annual gross income of almost CHF 200,000 to meet the affordability requirement.

Don't forget the additional costs

Another part of the first step is to take into account the additional costs of the purchase. When you buy a property, you will incur fees for the notary, land registry and transfer taxes. These vary between 0.2% and 3.5% of the purchase price, depending on the canton.

Important: these costs are usually not financed by the bank. You must have them in addition to the 20 per cent equity. Anyone who wants to buy a property must have this amount (often £30,000 to £50,000) in cash in their account.

Special considerations for newcomers

Are you new to Switzerland? Then the first step is a little more complex.

• EU/EFTA citizens: If you are resident in Switzerland, you are treated the same as locals and can buy property without any problems.
• Third countries: The "Lex Koller" often applies here. If you want to buy a property that will be your main residence, this is usually possible without a permit. However, the hurdles are high for holiday homes or investment properties.

Clarify your residence status and permit requirements before you start the property purchase process.

Proof of financing: your ticket to success

Once you know your figures (equity + affordability), go to the bank. The aim of this first step is to obtain a financing certificate or a commitment in principle to provide financing.

This document certifies that: "We would finance Mr/Ms Sample's plan to purchase a property up to an amount of X pounds sterling." With this paper in your pocket, estate agents and sellers will take you seriously right away. It is proof that your desire to buy a property is realistic.

Conclusion

The answer to the question of the first step is clear: calculate first, search later. Anyone who begins the process of buying a property with an emotional search risks frustration. The first step is a sober, detailed budget analysis. You need to structure your equity, understand the strict affordability rules of Swiss banks and plan for the additional costs of the purchase.

Only when you know your financial framework ("price tag") and, ideally, have a financing certificate in your pocket, should you start exploring the market. This makes the project of buying a property plannable and secure. You avoid unpleasant surprises and can enter price negotiations with confidence.

Use the Loft platform to analyse your options transparently and efficiently start your journey to home ownership.

Glossary

• Buying property: The purchase of real estate (house or flat), which in Switzerland requires public certification and entry in the land register.
• Affordability: A calculation made by the bank. It ensures that the running costs (imputed interest rate of 5% + amortisation + maintenance) do not exceed 33% of your gross income.
• Imputed interest rate: A theoretical interest rate (usually 5%) used by banks to check whether you can afford to buy the property even in periods of high interest rates.
• Hard equity: Capital that does not come from your pension fund (e.g. savings account, 3rd pillar). At least 10% of the purchase price is required here.
• Proof of financing: A document from the bank confirming your creditworthiness up to a certain amount. A must if you are serious about buying a property.