What role does the bank play in the property purchase process?

The bank's tasks in detail

1. The financier: assessing feasibility

The most obvious role of the bank in a property purchase is to provide external capital. But before a penny is paid out, the bank subjects you to a stress test.

The bank checks two key figures when buying property through a bank:

• Loan-to-value ratio: Is your 20 per cent equity sufficient? Is at least 10 per cent of this "hard" capital (not from a pension fund)?
• Affordability: Can you afford the mortgage if interest rates rise to 5 per cent? The bank takes a conservative approach: housing costs must not exceed one third of your gross income.

This check is the first filter in the property purchase process. It protects you from taking on too much financial risk. If the bank says "no", this is often a warning sign that you should take seriously.

2. The valuer: protection against excessive prices

An often underestimated function in the property purchase process is the valuation of the property. You and the seller have agreed on a price – but is the house really worth that much?

The bank carries out a hedonic valuation. It compares the location, size and condition with thousands of other transactions.

• The scenario: you want to buy for £1.2 million, but the bank values the property at only £1 million.
• The result: when buying property, the bank applies the lower of cost or market principle. The bank only lends against the lower value (the £1 million). You have to cover the difference of £200,000 entirely from your own capital.

In this case, the mechanism protects you from paying an inflated price that you would never be able to recoup when reselling the property.

3. The strategic advisor: mortgage models

Once the financing is secured, the role of the property purchase bank changes from examiner to advisor. Now it's time to structure your debt.

• Saron mortgage: Variable interest rate that follows market fluctuations. Often cheaper, but riskier.
• Fixed-rate mortgage: The interest rate is fixed for 5, 10 or more years. This provides planning security, but usually comes at a premium.

A good advisor will analyse your risk tolerance during a consultation on buying property. Are you planning to start a family? Is your job secure? The bank will help you find a mix that lets you sleep soundly. When buying property, strategy is often more important than haggling over the last decimal point of the interest rate.

4. The coordinator: payment promises and solicitors

In the critical phase of the transaction, the bank takes on a key administrative role. Once the purchase agreement is in place, the seller demands security. This is where the "irrevocable payment promise" comes into play in the property purchase process.

This is a guarantee from your bank to the seller that the purchase price will be paid on the agreed date. Without this document, the property purchase cannot be notarised.

The bank also coordinates the creation of the mortgage notes. The mortgage note is the lien in the land register that serves as security for the bank. The correct handling of these formalities is a key service in the bank property purchase process.

Special features for newcomers

For expats and newcomers, the hurdles involved in buying property are often a little higher.

• Credit history: As they often do not have a long credit history in Switzerland, banks check proof of income even more closely.
• Withholding tax: The affordability calculation can be more complex.
• Origin of funds: If you are bringing equity from abroad, the bank must check the origin of the funds in accordance with money laundering laws (compliance) when purchasing property. This requires transparency and documentation.

How to prepare for the bank meeting

To ensure that your property purchase is successful, you need to be well prepared. The bank is a partner, but you are the one requesting the capital.

• Prepare a dossier: Bring complete documentation (payslips, tax returns, debt collection records, pension fund statements). A well-organised dossier signals reliability when buying property.
• Prove your own funds: show bank statements. If your parents are giving you money, you will need written confirmation.
• Compare: The first offer is rarely the best. Play the competition when buying property. Obtain offers from cantonal banks, major banks and insurance companies. Insurance companies often offer attractive mortgages and are strong competitors in the property purchase market.

Conclusion

The bank is much more than just a safe for your money. When buying property, the bank acts as a guardian of price and affordability. It protects you from bad purchases, structures your risks and guarantees payment to the seller.

Don't see the strict checks involved in buying property as harassment, but as a safety net. If the bank gives you a loan, you have the seal of approval that your finances are healthy and the property is worth its price. Prepare yourself professionally, compare offers and make use of the expertise of advisors.

Use Loft to have your initial situation assessed neutrally and find the right financing partner.

Glossary

• Property purchase bank: The process of financing and completing a property transaction with the involvement of a credit institution.
• Promissory note: An irrevocable guarantee from the bank to the seller that the purchase price will be transferred upon transfer of ownership. A central element in real estate purchase bank.
• Hedonic estimation: A computer-assisted method used by banks to determine the market value of a property in order to minimise the risk involved in a property purchase via a bank.
• Debt certificate: A security that is entered in the land register and serves as collateral for the mortgage for the bank.
• Affordability: The golden rule of finance when buying property Bank: The imputed costs of the property must not exceed one third of your income.