20 April 2018, text: MoneyPark, photo: Helvetia / iStock
Only a very few property buyers can finance a house or an apartment entirely from their capital resources. Home buyers usually need a loan, normally known as a mortgage in the context of property. To take out a mortgage you usually have to fulfil two criteria, from the perspective of the financial institutions: loan-to-value ratio and viability.
Loan-to-value describes the ratio between mortgage amount and property value. In that context, financial institutions grant loans of up to 80 per cent of the property value. That means that a buyer has to raise at least 20 per cent equity capital. Of this 20 per cent equity capital, half must be available in the form of “hard equity” and must not come from pension assets drawn prematurely. That means this money has to be actually available and to be put aside by the buyers.
Once the buyer has saved up enough equity capital, the financial institutions check whether the property is financially viable in the long term. Viability requirements are fulfilled when no more than a third of gross household income has to be spent on the ongoing costs of the property. In the case of a mortgage from Helvetia, ongoing costs include 7% interest costs. These are made up of the following factors: Maintenance costs amount to 1 per cent of the property value; in addition there is another 1 per cent for amortisation and an imputed interest rate of 5 per cent. In most cases, the second mortgage has to be amortised within a certain period.