Buying a House Part 1: Switzerland
Buying a house anywhere can be difficult, but in a foreign country with a foreign language things can only feel worse - or can they? Read Part One of our guide to find out how to make this difficult subject easier for you to be successful at…
Are you looking for a holiday home, an investment, or somewhere for your family? Have you something to sell, do you want something old, or are you going to buy new? Which country do you want the house to be in?
Over the next few weeks Basel based Anglo-Swiss Independent Financial Advisors Grether MacGeorge GmbH will be bringing you up to date with property matters for expats in this area. Future articles will deal with buying in France and also in the UK, including for holiday or investment purposes but we start off with buying in Switzerland.
One thing many expats are unaware of with buying a house in Switzerland is that anyone can call themselves an architect: it is not a protected title as in so many other parts of the world. Make sure you check out his qualifications fully and get a good lawyer to go through the contracts carefully for you.
If you are buying new you will probably use an architect who might also act as the property developer, taking a commission from the building company and other suppliers involved. He won’t just design the plans, he can also act as co-ordinator and so does a lot of work keeping things moving. Building regulations and laws are very local in Switzerland, not National, so a local architect will really be helpful here: make sure you talk to one before you buy any land.
If you do use an architect as general contractor, make sure he or she pays the builders though or you could suffer from the dreaded Bauhandwerkerpfandrecht law. This can be as bad as it sounds. All builders involved in the construction of your house have the right to have their name entered in the land register with your house you have paid for being a security for their invoice to the architect. If he doesn’t pay them, they just take your house away - and keep the money you paid in it up to the limit of the building costs, which in Switzerland means a LOT! Many people use a neutral person to supervise payments, thus cutting the architect out of this particular financial link.
In Switzerland, as with much of Europe, house ownership is seen more as a liability than an asset which is probably why about 67% of the Swiss rent their homes, while in the UK and the US this is more like the number of people who are owner occupiers.
This low demand keeps prices stable and low, although with the new Bilateral Treaties with the EU allowing far more people to buy holiday homes here there may be some upward pressure on prices in the honeypot touristy areas.
Mortgages can be obtained from a number of sources which is not restricted to banks. A good Independent Financial Adviser can be very helpful here in finding the right lender for you, and save you a lot of time. You will need a minimum of a 20% deposit, but this can be taken from your pension scheme.
Swiss tax laws are quite favourable for house ownership with a mortgage because all the mortgage interest is tax deductible, although they do first of all add on a fictitious rent to your salary that you would be expected to pay if you did not own your house.
Swiss mortgages are not usually expected to be paid off in full. 65% of the property purchase will be written as an interest only mortgage, and the remaining 15% allowed will be charged out usually at a higher rate and will have to be amortised over a period of time.
The buzz phrase for mortgages at the moment is Indirect amortisation where all of the mortgage is set up as interest only and the remainder is paid off through the use of a 3rd pillar pension, usually an endowment insurance policy although special bank deposit accounts can also be used. This sounds good because you maximise the tax saving on the interest you pay, and get tax benefits on the contributions going into the 3rd pillar or Dritte Sauele.
However, similar plans have been widely discredited in tightly regulated financial environments such as that in the UK because of the high set up charges such plans can have. In Switzerland a couple of years ago the consumer magazine K-Tip surveyed the large and more popular insurance company plans and found it took between 9 and 22 years for such plans to reach breakeven and give you back what you had paid in.
The bank deposit account solution may have smaller charges, but if you are paying 4% for your mortgage and getting 2% in the special savings account you can see the tax advantage has to be pretty major for you to make any money. No prizes for guessing who wins here. Always get any figures or proposals checked out by an independent expert. With houses easily costing a million Francs or more, getting the correct financing package could save you tens of thousands in the long run.
If you do decide this indirect amortisation is the correct path for you to go down, make sure you contact your Independent Financial Advisor (IFA) before you sign any paperwork so that you can get the best plan for your needs. The banks often have an exclusive arrangement with one insurance company e.g. Credit Suisse owns Winterthur Insurance. Grether MacGeorge GmbH compares the products of many companies on the basis of both costs and performance, and offers you a complete service, co-ordinating finance with your English speaking lawyer and tax adviser to help you get the best solution.
- Always make sure you take professional advice before you get in a position where you really need it to rescue you.
- Read all the contracts and paperwork thoroughly.
- Do not assume that because it works that way at home it works that way here.
- Don’t let the bank push you around and make you think they are only doing this as a special favour. It’s their job!
- Do expect international house purchase to be more complicated than in your home country.
- If you are buying property as an investment, remember different rules apply compared with buying a home. Is it a good commercial proposition?
A good IFA is worth their weight in gold: make sure you use one that is well used to dealing with the international affairs of expats based in Switzerland, whether they be financial, tax, or legal.
Check out the Grether MacGeorge GmbH website for more ideas and help, or call us on 061 206 8800 for an appointment.
Keep your eyes open for our next article in this series: Buying a House in France.