For buyers in Switzerland, owning a home is increasingly unaffordable. Over 40% of home buyers exceed the standard imputed affordability of 33%, according to an analysis by Moneypark. However, providers are increasingly flexible about the amount of affordability.
Property prices have risen over five times more than incomes in the last ten years. This is increasingly leading to increased affordability, i.e. an increased ratio of the ongoing financing costs of a property to the borrower's income. This is one of the reasons why more and more mortgage providers have to apply greater flexibility in their affordability criteria in order to continue to attract new customers. Analysis by fintech company Moneypark suggests that over 40% of homebuyers now exceed the usual affordability limit of 33. This is true across all parts of the country. At the top of the list is Northwestern Switzerland, which already had the highest proportion of cases with increased affordability in 2015, at 23%. In 2019, this is now over half (53%) of all cases, more than in any other region.
Different reasons for increased affordability
"A closer look at mortgage borrowers with increased affordability shows that they are not bad borrowers, but rather buyers with strong incomes and finances who want to afford a more expensive and larger home", states Stefan Heitmann, CEO of Moneypark. Especially banks are very happy to handle such financing under an exception to the rules (the so-called "exception to policy"), because they can often sell additional services, the default risk is lower due to the higher income and especially well-earning young owners quickly find their way back into a standard affordability. With only slightly increased affordability of up to 40%, families who do not want to finance higher purchase prices compared to the standard affordability but, for example, have an increased need for space and at the same time have a temporarily lower income due to part-time income are the main beneficiaries.
According to Moneypark, insurance companies are very strict in their lending criteria and hardly ever finance beyond the standard affordability, whereas pension funds and foundations as well as some banks show greater flexibility in setting their criteria. According to their regulations, only a few banks finance customers with an imputed affordability of more than 40%. Accordingly, it is difficult for first-time buyers with increased affordability to find a provider on their own. "Due to the lack of transparency in the market, there is often a lack of access and also the knowledge that there would be partners in the market who would provide financing despite increased portability", says Heitmann. Thus, the number of unreported cases that can actually be financed is likely to be considerable.
Comparing offers is the key to success
A closer look at the effectively concluded conditions shows that an increased affordability has only a marginal impact on the interest rate. The premium for an affordability between 33 and 40% compared to a standard affordability amounts to only four basis points according to Moneypark's analysis. For a mortgage sum of 750,000 francs, this corresponds to an additional interest expense of only 25 francs per month. Only from an affordability of over 40% do the providers increase their risk premiums, which is reflected in the interest costs of the mortgagee (+11 basis points / 69 Swiss francs per month).
Moneypark advises affected home buyers to allow a little more time to find a financing partner. It is important that they make as broad a market comparison as possible and examine different provider groups (banks, insurance companies, pension funds). "A refusal with a financing institute does not mean yet by any means that nowhere a financing can be found. There are individual providers whose calculation models deviate from typical market standards and allow a more individualized view of the buyer's financial situation. Home buyers who still cannot find a financing partner should consider purchasing a lower-priced entry-level property and benefiting from the low mortgage interest rates in order to finance the dream property at a later point in time with their savings.", recommends Heitmann.