Calculating affordability: how much house you can afford, with mortgage calculator
- Step 1: the equity
- Step 2: the affordability formula
- Worked example: single-family house in Pratteln for CHF 1,000,000
- Improving affordability: seven levers
- What changes from 2029 and what does not
- Affordability and selling: why it determines the pool of buyers
- Mortgage calculator: run the numbers on your property
“How much house can I afford?” has a clear answer that has nothing to do with the current mortgage rate. Banks and insurers calculate affordability using a formula that has been the same for years: notional interest rate of 5 %, amortisation of the second mortgage, 1 % running costs, and all of that may amount to at most one third of your gross income. On top of this comes the equity rule: at least 20 %, half of which may not come from the pension fund. This guide explains the calculation step by step, shows an example from Pratteln and explains what changes with the abolition of the imputed rental value from 2029, and what does not. Run the numbers on your property with our mortgage calculator .
In brief
- Equity: at least 20 % of the purchase price, of which at least 10 % “hard” equity (not from the pension fund)
- Affordability: notional interest of 5 % on the whole mortgage + amortisation of the 2nd mortgage (down to 65 % within 15 years or by retirement) + 1 % of the purchase price for maintenance and running costs
- Rule: these notional costs may amount to at most 33 % of gross income
- Example: a house for CHF 1,000,000 with 20 % equity needs around CHF 182,000 gross income per year
- From 2029 the tax advantage of the mortgage disappears; the bank’s affordability calculation stays the same
Step 1: the equity
Before affordability is even calculated, the equity has to be right. The rules of the Swiss Bankers Association apply at all banks:
- At least 20 % of the purchase price (or of the bank’s lower lending value) must come from you; the bank finances at most 80 %
- At least 10 % must be “hard”: savings, securities, pillar 3a, advance inheritance, gift, surrender value of life insurance policies. Pension fund assets (early withdrawal or pledge) may cover at most the second 10 %
- Purchase costs come on top and must also be paid from your own funds: in the canton of Basel-Landschaft the buyer’s share of the property transfer tax (1.25 %, exempt for the owner-occupied home), notary and land registry, creation of the mortgage note; allow 1 to 3 % of the purchase price
If the bank’s lending value is below the purchase price, you have to cover the difference entirely yourself. This is the most common reason why financing fails on “overpaid” properties.
Step 2: the affordability formula
The bank calculates with notional, not actual costs. This ensures you can hold on to the house even if interest rates rise.
- Notional interest: 5 % on the entire mortgage (some providers 4.5 %), regardless of whether your fixed-rate mortgage costs 1.5 % today
- Amortisation: the second mortgage (the part above 65 % loan-to-value) must be repaid within 15 years or by retirement, on a straight-line basis, one fifteenth per year
- Maintenance and running costs: a flat 1 % of the purchase price or market value per year (heating, electricity, water, insurance, repairs, reserves)
- Affordability limit: the total may amount to at most 33 % of gross income (for couples, both incomes); some banks calculate with net income and 35 to 38 %
Formula: (mortgage × 5 %) + (2nd mortgage ÷ 15) + (purchase price × 1 %) ≤ gross income × 33 %.
Worked example: single-family house in Pratteln for CHF 1,000,000
Mortgage: CHF 800,000 = 80 % loan-to-value. Of which 1st mortgage CHF 650,000 (65 %), 2nd mortgage CHF 150,000.
Notional interest: 800,000 × 5 % = CHF 40,000 per year
Amortisation 2nd mortgage: 150,000 ÷ 15 years = CHF 10,000 per year
Maintenance and running costs: 1,000,000 × 1 % = CHF 10,000 per year
Total notional costs: CHF 60,000 per year. Divided by 33 % = required gross income of around CHF 182,000 (with a 35 % limit: CHF 171,000).
Actual costs today with a 1.7 % fixed-rate mortgage: interest CHF 13,600 + amortisation CHF 10,000 + running costs CHF 10,000 = CHF 33,600 per year, i.e. CHF 2,800 per month, less than the rent for a comparable house. It is exactly this gap between notional and actual that is the reason why many families could pay for a house but do not get a mortgage from the bank.
Improving affordability: seven levers
- More equity: every CHF 100,000 less mortgage lowers the notional costs by CHF 5,000 per year and the required income by CHF 15,000
- Advance inheritance or gift from parents, tax-free between parents and children in the canton of Basel-Landschaft
- Pillar 3a withdraw or pledge: pledging keeps the tax advantage, withdrawal reduces the mortgage
- Pledge the pension fund instead of withdrawing: your retirement provision stays intact, the bank accepts the pledge as additional security; in return the mortgage is higher
- Second income have it counted, even part-time; bonuses and side income often count only in part
- Compare providers: insurers and pension funds sometimes calculate with a notional rate of 4.5 % or a 35 % limit
- Property with a granny flat: rental income is partly taken into account
What changes from 2029 and what does not
With the abolition of the imputed rental value on 1 January 2029, the mortgage interest deduction for the owner-occupied home disappears. For the bank’s affordability calculation this changes nothing: it continues to calculate with 5 %, 1 % and one third of income.
What changes is the strategy afterwards: a high mortgage no longer brings a tax advantage, amortising becomes more attractive. For first-time buyers there is a transitional deduction of up to CHF 10,000 (married couples) or 5,000 (single persons) per year, which expires over ten years. All the details in the guide to the abolition of the imputed rental value.
For sellers this means: from 2029 buyers will count less on tax effects and more on equity. Properties that can be carried with 20 % equity and a middle income remain the most sought after.
Affordability and selling: why it determines the pool of buyers
As a seller you should know your buyer’s affordability calculation. A house for CHF 1,300,000 needs around CHF 235,000 gross income with 20 % equity; only a few households in the Baselbiet have that. For CHF 950,000 around CHF 173,000 is enough. Every price step excludes or includes buyers; the asking price therefore decides the number of viewings more than any listing.
Before any negotiation, ask for a financing confirmation from the bank. It shows that equity and affordability have been checked, and spares you the sale that falls through four weeks before the notary appointment. How the sale proceeds is described in our guide to the selling process; what happens to your own mortgage when you sell, in the guide to the mortgage when selling a house.
Mortgage calculator: run the numbers on your property
Our mortgage calculator shows you in seconds, from purchase price, equity, interest rate and income: the monthly mortgage payment at the current rate, the notional affordability at 5 %, the amortisation of the second mortgage and the total cost of living there per month. The interest rate is a guide value for a 10-year fixed-rate mortgage and is updated monthly.
- Green: affordability below 33 %, the financing is feasible at most banks
- Above 33 %: consider more equity, a cheaper property or a second income
- For the specific financing, the comparison of providers and affordability in retirement, our financial adviser Roman Frey advises you, independently of any bank
Questions on this topic.
How does the bank calculate the affordability of a mortgage?
With notional costs: 5 % interest on the whole mortgage, amortisation of the second mortgage (above 65 % loan-to-value) over 15 years and 1 % of the purchase price for maintenance and running costs. The total may amount to at most one third of gross income.
How much equity do I need for a house in Switzerland?
At least 20 % of the purchase price, of which at least 10 % from your own funds without the pension fund (savings, pillar 3a, advance inheritance, gift). On top come purchase costs of 1 to 3 %, which also have to be paid from your own funds.
How much income do I need for a mortgage of CHF 800,000?
For a purchase price of CHF 1,000,000 and a CHF 800,000 mortgage, around CHF 180,000 gross income per year: 40,000 notional interest + 10,000 amortisation + 10,000 running costs = 60,000, divided by 33 %.
Why does the bank calculate with 5 % when the mortgage only costs 1.5 %?
Because the mortgage runs for 20 or 30 years and interest rates can rise during that time. The notional rate is a safety buffer: it ensures you can hold on to the house even at 4 or 5 % interest.
Does the abolition of the imputed rental value change affordability?
No. From 2029 the bank calculates the same as today. What changes is the tax effect: the mortgage interest deduction for the home disappears, amortising becomes more attractive. First-time buyers receive a time-limited deduction for ten years.
What is the difference between the 1st and 2nd mortgage?
The 1st mortgage covers up to 65 % of the lending value and does not have to be amortised. The 2nd mortgage is the part between 65 and 80 %: it must be repaid within 15 years or by retirement and at many banks carries a slightly higher interest rate.
Buying, selling or both: what is affordable?
We value your current property free of charge and work out with you what a change means financially. For the financing, Roman Frey advises you independently of any bank.
Let’s talk about your property.
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