Mortgage financing is at the heart of most property acquisitions in Switzerland. The vast majority of buyers resort to a loan secured by a real estate pledge on the acquired property. Swiss law offers two main instruments for this security: the classical mortgage and the mortgage certificate, the latter being by far the most common in practice. PBM Avocats advises its clients on the legal aspects of mortgage financing, the drafting and verification of pledge deeds, the hypothecation of mortgage certificates and the implications in case of repayment difficulties.
Real Estate Pledge Rights: Mortgage and Mortgage Certificate (art. 793-865 CC)
Swiss law distinguishes two main forms of real estate pledge rights. The mortgage (art. 793 CC) is an accessory pledge linked to the claim it guarantees: it arises and is extinguished with the claim. Although still provided for by the CC, it is little used in modern bank financing. The mortgage certificate (art. 842 CC), by contrast, 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 registered mortgage certificate (registered only in the land register, without a paper title).
The registered mortgage certificate is today the standard of the Swiss mortgage market. It offers great flexibility: the same certificate can be successively pledged to different banks on refinancing, without requiring the registration of a new certificate and payment of new notary and register fees. The pledge deed (hypothecation agreement) between the owner and the bank defines the conditions of the loan, the interest rate, amortisation rules and the bank's rights in case of default. PBM Avocats examines these deeds on behalf of borrowers to ensure that the conditions comply with the negotiated terms.
Grant Conditions and Required Equity
Swiss banking institutions apply self-regulation guidelines issued by the Swiss Bankers Association (SBA) that strictly govern the conditions for granting mortgage loans. The main rule is the loan-to-value ratio (LTV): the loan cannot exceed 80% of the pledged value. The pledged value is determined by the bank according to 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 so-called strict equity — personal savings, pillar 3a savings, donations or advances on inheritance — and not from early OPA (occupational pension) withdrawals. The remaining 10% may come from an early OPA withdrawal or a pledge of OPA savings. 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 pledged value for the portion exceeding 65%, and flat-rate maintenance costs — do not exceed one third of the household's gross income.
Types of Rates and Amortisation
The mortgage loan may be at a fixed rate, 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 specified period, with significant penalties in case of early repayment (exit indemnity). The variable rate, indexed on the SARON (Swiss Average Rate Overnight), is more flexible but exposes the borrower to market rate variations. 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 can be direct (progressive repayment of capital) or indirect (constitution of savings in pillar 3a, which will be used to repay the debt at term). The mortgage debt must be brought to 65% of the pledged value within fifteen years, according to SBA guidelines. Indirect amortisation is favoured for its tax advantages: insurance premiums or pillar 3a payments are deductible from taxable income, while the maintained mortgage debt 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 enforcement proceedings for realisation of the real estate pledge under art. 151 et seq. DEBA. These proceedings result in the public auction of the encumbered property, with the proceeds used to satisfy mortgage creditors in order of their rank. The borrower has the possibility of requesting a grace period from the court if their financial situation is temporarily difficult. PBM Avocats accompanies clients in financial difficulty in negotiating with mortgage creditors and defending their interests in forced realisation proceedings.
Frequently Asked Questions on Mortgage Financing
What is the difference between a mortgage and a mortgage certificate?
The mortgage (art. 793-823 CC) is an accessory security: it guarantees a specific claim and is extinguished with it. The mortgage certificate (art. 842-865 CC) is, since the 2012 revision, a security representing an abstract claim guaranteed by 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 (hypothecation) to the bank granting the credit, without the need to register a new certificate on each refinancing. This is why the registered 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 constituting pension savings — generally in pillar 3a (insurance or savings account) — which will be used to repay the debt at term. Payments to pillar 3a are tax-deductible (within limits set annually 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 on condition that the pension savings are pledged in their favour.
What are the minimum equity requirements for a mortgage loan in Switzerland?
The self-regulation guidelines of the Swiss Bankers Association (SBA) require a minimum equity contribution of 20% of the pledged value (value determined by the bank, often lower than the sale price). At least 10% must come from so-called 'hard' equity — personal savings, pillar 3a savings, donations — and not from early withdrawals of the second pillar (OPA). Mortgage financing cannot therefore exceed 80% of the pledged value (loan-to-value ratio or LTV of 80%). Moreover, the theoretical annual charges (interest calculated at a rate of 5%, amortisation and maintenance costs) must not exceed one third of the household's gross income.
Can second pillar (OPA) savings be used to finance a property purchase?
Yes, under certain conditions provided for by the Federal Act on Occupational Pensions (OPA) and the Vested Benefits Ordinance. Early OPA withdrawal is possible for the acquisition or construction of owner-occupied residential property for permanent personal use (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 savings may be pledged as additional security for the mortgage loan, without effective withdrawal and without immediate taxation. The early withdrawal reduces the future pension benefit, which must be taken into account in financial planning.
What happens to the mortgage certificate when the property is sold?
When a property is sold, the mortgage certificates encumbering it can be handled in several ways. If the buyer's bank agrees to take over the existing certificate, it can be assigned to the new bank (or pledged), which avoids the costs of registering a new certificate. If the sale is made without taking over the financing, the certificate is generally cancelled — which entails notary and land register costs — or returned to the owner free of pledge for future use. The registered 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 property transactions.