Affordability calculation when buying real estate

The step into one's own four walls often represents a life-changing decision that needs to be carefully considered. In Switzerland, the affordability calculation is crucial. Its purpose is to ensure that the financing of a property is based on solid foundations in the long term. In this blog post, we will take a closer look at how the affordability calculation works and what requirements play an essential role.

What is the affordability calculation?

The affordability calculation is a financial analysis intended to ensure that a property buyer can afford the financial obligations of a mortgage. It takes into account various factors to ensure that the monthly installment payments for the loan or mortgage are in line with the financial capabilities of the buyer.

How does the affordability calculation work?

The calculation of affordability is based on various financial factors:

1. Income: The buyer's income is one of the central aspects. It includes not only the current salary but also other sources of income such as rental or interest income.
2. Expenses: All existing financial obligations and expenses are taken into account. This includes not only ongoing costs such as rent, utility bills, and living expenses, but also existing loans or liabilities.‍
3. Interest rate and amortization: The current interest rate and the amortization terms of the loan significantly affect the monthly installment payments. Higher interest rates lead to higher monthly burdens. In calculating affordability, banks typically assume a mortgage interest rate of 5% and an amortization period of 15 years. ‍
4. Equity: The existing equity of the buyer also plays a role. Higher equity can reduce the monthly burden. Generally, at least 20% of the purchase price of a property must be financed through equity.

The affordability calculation is usually carried out by banks or financial institutions. As a rule of thumb, the costs for the mortgage should not exceed one-third or 35% of gross income.

The affordability calculation is a crucial step in the purchase of real estate in Switzerland. It ensures that the financial burden of the purchase is sustainable in the long term. Potential buyers should thoroughly examine their financial situation and, if necessary, seek professional advice to ensure that they are making the right decision.

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