How much home can you afford? The Swiss affordability rule

Swiss banks grant a mortgage only if the calculated housing costs do not exceed one third of gross household income. Not net income: gross, before deductions.

Calculated costs don't mean the mortgage's actual interest payment, but a prudent estimate that stays sustainable even if rates rise.

Even though real rates are much lower today, the bank calculates interest at an imputed rate of about 5%. It's a safety cushion: if you can cope at 5%, you can also withstand sharp rate increases.

On top come roughly 1% of the property's value per year for maintenance and ancillary costs, plus the amortisation of the second mortgage.

You need at least 20% of the price as equity, and at least half of that (10% of the price) must come from outside the second pillar: savings, securities, third pillar or gifts.

The part of the mortgage above two thirds of the property value must be repaid within 15 years (or by retirement). This forced repayment is included in the affordability calculation.

A property at CHF 800,000 requires CHF 160,000 of equity. The mortgage is CHF 640,000. Calculated costs are about CHF 32,000 of imputed interest (5%), CHF 8,000 of maintenance and roughly CHF 7,100 of amortisation: around CHF 47,000 per year in total.

To respect the one-third rule you therefore need a gross household income of at least about CHF 141,000. If income falls short, you can raise the equity or look for a cheaper property.