Financing first: how much equity does your property tie up?
Interest rates are one issue. Securing suitable financing is another. From an investor’s perspective, the starting point is the amount a lender will actually provide: how much will the bank finance, how much of your capital is tied up, and what reserve remains?
The essentials
- Clarify access to financing and the loan amount before comparing its price.
- Purchase price, the bank’s lending valuation and an affordable loan are different figures.
- More debt can reduce the equity required, but increases debt service and risk.
An attractive rate is no substitute for a workable commitment
A low interest rate has limited value if the required loan cannot be secured. The investor’s first question is therefore different: which financing structure is actually feasible for this property and their own financial position?
In its release of 22 May 2025, FINMA emphasises sustainable affordability and prudent valuation. Banks should set their own risk-appropriate lending and amortisation criteria. This release provides background; it is not news from this week.
Source: FINMA · Risiken am Immobilien- und Hypothekarmarkt, 22. Mai 2025Three figures to keep separate
The purchase price is what you pay the seller. The lending valuation is the bank’s assessment basis. The approved loan also depends on its risk assessment and affordability review. A desired financing ratio is not a loan commitment.
For example, you buy for CHF 5 million but the bank values the property at CHF 4.5 million. If it financed 75% of that value, the loan would be CHF 3,375,000. You would need CHF 1,625,000 towards the purchase price, before acquisition costs and reserves. Applying the same ratio to CHF 5 million would require CHF 1,250,000. The valuation basis changes your equity requirement by CHF 375,000.
- Clarify the lending valuation and accepted income in writing.
- Compare the loan amount, amortisation, security and conditions together.
- Plan a cash reserve in addition to the purchase price.
Ten percentage points change the equity tied up
For the following comparison, assume both the purchase price and lending valuation are CHF 5 million. At 65% financing, the loan is CHF 3,250,000 and your contribution is CHF 1,750,000. At 75%, the loan is CHF 3,750,000 and your contribution CHF 1,250,000.
The difference is CHF 500,000 of equity tied up. It is not a saving: the other side is CHF 500,000 of additional debt. Whether this structure makes sense depends on income, reserves and risk. Both ratios are illustrative scenarios, not universal lending limits.
The same property. A different equity commitment.
Scenario A · 65% financing
Scenario B · 75% financing
Our calculation: purchase price and lending valuation both CHF 5,000,000. Excludes acquisition costs and additional reserves. Illustrative ratios, not loan commitments or universal lending limits.
Less equity tied up means greater ongoing commitments
Assume annual cash flow of CHF 200,000 after vacancy and ongoing property costs, before financing. The illustrative interest rate is 2%, with annual principal repayment of 1% of the initial loan in both cases. On CHF 3,250,000 of debt, interest is CHF 65,000 and principal repayment CHF 32,500. That leaves CHF 102,500.
On CHF 3,750,000 of debt, interest is CHF 75,000 and principal repayment CHF 37,500. That leaves CHF 87,500. The larger loan requires CHF 500,000 less equity but consumes CHF 15,000 more cash in this first year. Principal repayment reduces the debt; it is not interest expense.
For perspective, a 0.2 percentage-point rate difference on CHF 3,250,000 is CHF 6,500 a year. This ongoing cost and the initial equity commitment are different measures. A sound decision considers both over the intended investment horizon.
Cash remaining in the first year
Scenario A · CHF 3,250,000 loan
CHF 102'500Scenario B · CHF 3,750,000 loan
CHF 87'500Our calculation: CHF 200,000 before financing less 2% interest and 1% principal repayment on the initial loan. Before taxes, acquisition costs and additional capital expenditure; not market offers.
Start the discussion with a financing structure
A stronger negotiating position starts with a complete picture: supportable income, investment needs, available equity and a credible reserve. Only then can you assess the loan amount a bank will support and the price worth paying for it.
My perspective as an investor: financing should first support a sensible capital commitment and room to act. Then it is worth negotiating the interest rate, maturity and conditions. Higher leverage is not an objective in itself.
Use the property calculator to explore different financing assumptions. An income schedule, planned investments and a specific bank offer provide a useful basis for a personal discussion.
Common questions
Are 65% and 75% fixed rules for Swiss banks?
No. They are illustrative comparison assumptions. Actual financing depends on factors including valuation, income, credit assessment and the individual lender’s requirements.
Is the remaining cash flow a net investment return?
No. The example shows first-year cash flow before taxes, acquisition costs and additional capital expenditure. It excludes changes in property value and is not a complete return calculation.
Sources & further reading
General information. Examples and assumptions do not replace a review of your business or individual legal, tax and investment advice.
Prepared with AI assistance and editorially approved before publication.
