Shift to paying off principal changes homeowners’ landscape
BERN, SWITZERLAND – Swiss banks will face tougher capital and lending requirements, the government emphasized in issuing new regulations Friday 1 June, but tucked into the end of the statement from the Swiss Federal Council were details that could have a strong impact on homeownership in Switzerland. Two news rules require banks to ask for a downpayment of 10 percent of a mortgage, but without using any second pillar funds. The second pillar, or company pension plan funds are currently used, in some cases.
A second rule will have a longer term impact: homeowners must pay off at least 34 percent of the principal in 20 years. Currently, banks allow many mortgage holders to put money into their third pillar or personal retirement fund instead of paying off the principal.
Income placed in a third pillar is not taxed as income until it is taken out, with the idea that this will be at retirement, when earnings have dropped.
The new rules apply only to new mortgage contracts to be signed, the Federal Council’s efforts to prevent a bubble in the real estate market, but they could have an impact on recently signed contracts if they cause property values to fall significantly.
The new regulations are behind of flurry of news analyses in Swiss media in the past four days, as the Tribune de Geneve points out in a roundup of media remarks.