We use cookies to make its website more user-friendly, secure and effective. Cookies collect information about the use of websites. Further information: Information on data protection
Beyond the borders: Buying a house without a deposit?
Suitable credit standing may allow «full financing».
A quick look at two of Switzerland’s bigger neighbours shows how it is possible to finance a house without a deposit in both Germany and France. In Germany, full financing is mainly possible if the borrower’s credit standing is good and their general situation is stable. While those who can put up a deposit as well will certainly benefit from lower interest rates and have a wider choice, financing without any kind of deposit is still possible with a number of financing partners – providing people have a regular income at an appropriate level. However, this also has to do with the fact that mortgages in Germany are normally paid off in full before retirement or shortly thereafter. The long-term commitment to make ongoing repayments significantly reduces the risk of the affordability requirement not being met.
Buying a house without a deposit – a possibility in France.
France, Switzerland’s neighbour to the west, has a broadly similar system, which also allows for property purchases without a deposit. This is referred to as «financement à 100 pour cent» (100% financing). But where none of the buyer’s own funds are forthcoming, this does have an impact on the maximum purchase price. This is because in France, there is a statutory obligation to clear mortgages within 30 years at the latest. The maximum allowable monthly repayment instalment is determined on the basis of a person’s salary, and any of their own funds they put up, and may vary slightly between financing partners. It is then usual to take out a fixed-rate mortgage with a term of between 20 and 30 years, which is subsequently paid off in full. If the borrower does not put up any deposit, the interest rate will be somewhat higher, the range of potential mortgage providers will be narrower, and (even) more attention will be paid to the borrower’s credit standing. Financing is still possible, however, and even at «110%» as notary’s costs and administration fees can amount to another sizeable sum to be paid as soon as the mortgage is taken out, with some financing partners also allowing this to be incorporated into the mortgage loan.
Regulatory hurdles make deposit-free property purchases impossible in Switzerland.
These options are unheard of on the Swiss mortgage market. In Switzerland, the self-regulation system for banks means that two criteria must always be met before a mortgage can be taken out: loan-to-value ratio and affordability. The former describes the ratio, in percentage terms, between the deposit and the market value of the property, which must not exceed 80%; so at least 20% of the market value must come from the borrower’s own funds, half of which may take the form of pension money drawn early. Affordability is to do with the ongoing costs of the property as a ratio of gross household income, whereby ongoing costs must not exceed 33% of income. In addition to mortgage interest at an imputed rate of 5%, these costs also include paying off the mortgage loan and maintaining the property (both at around 1% of the market value of the property per year).
