Buying a Holiday Property – What needs to be considered?

Have you ever dreamed of buying a holiday home in the Swiss mountains or a holiday flat in Ticino, Switzerland’s sunniest region? You are not alone.

In the wake of the Corona crisis, the demand for holiday properties in Switzerland has been higher than ever. But what does it actually take to realise your own dream of a holiday home? In the following, we would like to inform you about important aspects regarding the purchase of a holiday home.

When financing a holiday home, lenders are usually a little more cautious about the loan-to-value ratio, i.e. the maximum possible mortgage. In general, the maximum loan-to-value ratio for holiday properties is between 50-70% of the purchase price. The reason for the stricter loan-to-value ratio is that the default risk for the lender is greater – because in the event of a shortage of money or an economic recession, holiday properties are the first to be resold, often even below the purchase price. Thus, the market for holiday properties can also be exposed to higher price fluctuations in times of crisis.
In addition, the lender takes into account the total burden of the borrower’s mortgage loan. So if you have already taken out a mortgage for a property as your main residence, the burden of the holiday property will be added to the existing mortgage burden. However, the total cost of all mortgages cannot exceed one third of the family income.

So always keep the following factors in mind:

Equity

If you buy a property as your main residence, you generally only need to provide 20% equity capital. This can come in part from the third pillar. It is even possible to draw part of the own funds from the second pillar. However, this is not possible for a holiday home. The law stipulates that the entire own funds for a holiday home must come from your savings, the so-called “hard own funds” such as savings accounts or securities deposits.
With these regulations, the federal government wants to prevent buyers from putting their retirement savings at risk for the purchase of a holiday flat or holiday home. One way to increase your equity with pension assets is to increase the mortgage on an existing, owner-occupied property up to 80%. The capital thus freed up can then be used to finance a second property, such as a holiday home. We would be happy to show you your individually possible strategies.

Amortisation

In order to reduce the risks involved in lending on holiday properties, there are also stricter rules regarding amortisation for these properties. Lenders usually require up to 50% repayment of the mortgage for holiday homes. This aspect is also included in the calculation regarding affordability.

Holiday homes abroad

Swiss banks generally do not grant mortgages for properties abroad. If you would like to settle abroad with a holiday home, we advise you to contact local banks. However, it is important to find out exactly what the local financing rules and laws are and to check the financial implications, such as foreign taxes.

Interest rate

In conclusion, depending on the lender, the mortgage interest rate for a holiday property can be up to one percent higher than for a main residence. However, there is a lot of competition in the Swiss mortgage market, so we strongly recommend that you compare offers from different providers.

Do you have any further questions regarding this topic? We will be happy to help you realise your dream of a holiday home and would be happy to show you your individually possible strategies.