Affordability calculation when buying real estate

Moving into your own home is often a life-changing decision that requires careful consideration. In Switzerland, the affordability calculation is of crucial importance. Its purpose is to ensure that the financing of a property is on a solid footing in the long term. In this blog post, we take a closer look at how the affordability calculation works and which requirements play an important role.

What is affordability calculation?

Affordability calculation is a financial analysis designed to ensure that the buyer of a property can meet the financial obligations of a mortgage. It takes various factors into account to ensure that the monthly instalments for the loan or mortgage are in line with the buyer's financial capabilities.

How does the affordability calculation work?

The affordability calculation is based on various financial factors:

1. ‍Income: The buyer's income is one of the key aspects. It includes not only their 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 running costs such as rent, utilities, and living expenses, but also existing loans or liabilities.‍
3. Interest rate and amortization: The current interest rate and amortization terms of the loan have a significant impact on the monthly installments. Higher interest rates lead to higher monthly payments. When calculating affordability, banks generally assume a mortgage interest rate of 5% and a repayment period of 15 years. ‍
4. Equity: The buyer's existing equity also plays a role. Higher equity can reduce the monthly burden. As a rule, at least 20% of the purchase price of a property must be financed by equity.

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

The affordability calculation is a crucial step when buying 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 make the right decision.