Mortgage financing lies at the heart of most real estate acquisitions in Switzerland. The vast majority of buyers resort to a loan secured by a real estate pledge on the property acquired. Swiss law offers two main instruments for this security: the classical mortgage and the mortgage certificate, the latter being by far the most widespread in practice. PBM Avocats advises clients on the legal aspects of mortgage financing, the drafting and verification of pledge deeds, the pledging of certificates and the implications in the event of repayment difficulties.
Real Estate Pledge Rights: Mortgage and Mortgage Certificate (arts. 793–865 SCC)
Swiss law distinguishes two main forms of real estate pledge rights. The mortgage (art. 793 SCC) is an accessory pledge linked to the claim it secures: it arises and is extinguished with the claim. Although still provided for by the SCC, it is little used in modern bank financing. The mortgage certificate (art. 842 SCC), on the other hand, is an abstract claim — independent of the underlying relationship — secured by a real estate pledge. Since the revision of property law in 2012, it exists in two forms: the paper mortgage certificate (negotiable instrument) and the register mortgage certificate (registered only in the land register, without a paper instrument).
The register mortgage certificate is today the standard of the Swiss mortgage market. It offers great flexibility: the same certificate may be pledged successively to different banks at refinancing, without the need to register a new certificate and pay new notary and registry fees. The pledge deed (pledge agreement) between the owner and the bank defines the loan conditions, the interest rate, the amortisation rules and the bank's rights in the event of default. PBM Avocats reviews these deeds on behalf of borrowers to ensure the conditions are in accordance with the negotiated terms.
Granting Conditions and Required Own Funds
Swiss banking establishments apply self-regulatory guidelines issued by the Swiss Bankers Association (SBA) that strictly govern the conditions for granting mortgage credits. The main rule is that of the ratio between the loan amount and the collateral value (loan-to-value, LTV): the loan may not exceed 80% of this value. The collateral value is determined by the bank according to its internal methods and may be lower than the sale price, particularly for luxury properties or atypical assets.
At least 10% of the purchase price must come from strict own funds — personal savings, third pillar 3a assets, donations or advances on inheritance — and not from early OPA second pillar withdrawals. The remaining 10% may come from an early OPA withdrawal or a pledge of OPA assets. Furthermore, the affordability criterion (Tragbarkeit) requires that the theoretical annual charges — calculated on the basis of a theoretical interest rate of 5%, annual amortisation of at least 1% of the collateral value for the tranche exceeding 65% and flat-rate maintenance costs — do not exceed one third of the gross household income.
Types of Rates and Amortisation
The mortgage loan may carry a fixed rate, a variable rate (SARON since the replacement of LIBOR in 2021) or a mixed rate. The fixed rate offers planning security but commits the borrower for a fixed period, with significant penalties in the event of early repayment (exit indemnity). The variable rate, indexed to SARON (Swiss Average Rate Overnight), is more flexible but exposes the borrower to market rate fluctuations. The choice of rate type is a strategic decision that must integrate rate evolution prospects, the planned holding period and the borrower's risk tolerance.
Amortisation of the mortgage debt may be direct (progressive repayment of capital) or indirect (building up assets in the third pillar 3a, to be used to repay the debt in due course). The mortgage debt must be reduced to 65% of the collateral value within fifteen years, in accordance with SBA guidelines. Indirect amortisation is preferred for its tax advantages: insurance premiums or third pillar 3a payments are deductible from taxable income, while the mortgage debt maintained allows passive interest to be deducted. PBM Avocats coordinates legal advice with the tax aspects of mortgage financing.
Default and Pledge Realisation
In the event of borrower default, the bank may initiate a pledge realisation enforcement proceeding for real estate under arts. 151 et seq. DEBA. This procedure results in the public auction of the encumbered property, with the proceeds serving to satisfy mortgage creditors according to their rank. The borrower has the option of requesting a grace period from the judge if their financial situation is temporarily difficult. PBM Avocats assists clients in difficulty in negotiating with mortgage creditors and defending their interests in forced realisation proceedings.
Frequently Asked Questions about Mortgage Financing
What is the difference between a mortgage and a mortgage certificate?
The mortgage (arts. 793–823 SCC) is an accessory security: it guarantees a specific claim and is extinguished with it. The mortgage certificate (arts. 842–865 SCC) is, since the 2012 revision, a movable security representing an abstract claim secured by a real estate pledge. It does not depend on the underlying claim (mortgage loan) and survives even after repayment of the loan. The mortgage certificate can be pledged to the bank granting the credit, without the need to register a new certificate at each refinancing. This is why the register mortgage certificate is by far the most widely used form in Swiss mortgage financing practice.
What is indirect amortisation and why is it common in Switzerland?
Indirect amortisation consists of not directly repaying the mortgage debt, but rather building up pension assets — generally in pillar 3a (insurance or savings account) — which will be used to repay the debt in due course. Payments to pillar 3a are tax-deductible (within the annual limits set by the Confederation), which represents a significant tax advantage. The mortgage debt maintained also allows passive interest to be deducted from taxable income (for natural persons subject to income tax in Switzerland). Direct amortisation, by contrast, reduces the deductibility of interest over time. Swiss banks generally accept indirect amortisation provided the pension assets are pledged in their favour.
What are the minimum own funds requirements for a mortgage loan in Switzerland?
The self-regulatory guidelines of the Swiss Bankers Association (SBA) require a minimum equity contribution of 20% of the collateral value (value determined by the bank, often lower than the sale price). At least 10% must come from so-called 'hard' own funds — personal savings, third pillar 3a assets, donations — and not from early withdrawals of the second pillar (OPA). Mortgage financing may therefore not exceed 80% of the collateral value (loan-to-value or LTV ratio of 80%). Furthermore, the theoretical annual charges (interest calculated at a rate of 5%, amortisation and maintenance costs) must not exceed one third of the gross household income.
Can second pillar (OPA) assets be used to finance a real estate purchase?
Yes, under certain conditions provided by the Federal Act on Occupational Pension (OPA) and the Vested Benefits Ordinance. Early OPA withdrawal is possible for the acquisition or construction of owner-occupied, permanent residential property (art. 30c OPA). The minimum withdrawal amount is CHF 20,000, and the application must be made to the pension institution. The withdrawal is subject to a special tax (tax on capital benefits). Alternatively, OPA assets may be pledged as additional security for the mortgage loan, without actual withdrawal and without immediate taxation. Early withdrawal reduces future pension and disability benefits, which must be taken into account in financial planning.
What happens to the mortgage certificate in the event of a property sale?
When a property is sold, the mortgage certificates encumbering it may be treated in several ways. If the buyer's bank agrees to take over the existing certificate, it may be transferred to the new bank (or pledged), avoiding the costs of registering a new certificate. If the sale occurs without taking over the financing, the certificate is generally cancelled — entailing notary and land register costs — or returned to the owner free of the pledge for future use. The register mortgage certificate (introduced in 2012) is less costly to modify than a paper certificate, as it does not require a paper title. PBM Avocats coordinates these aspects in real estate transactions.