To many, the prospect of buying a house in Switzerland seems a long way off due to the high taxes, costs and fees associated with owning your own home. To help, the banking division of Migros has launched a new mortgage that only requires a 10 percent deposit to buy a house, instead of the 20 percent rate charged by most Swiss banks.
Cactous, a division of Migros Bank, said in a statement that nine out of 10 households cannot afford to buy a house due to rigid mortgage costs and fees. Specifically, many fall short when it comes to the 20 percent deposit, a must for the majority of fixed-rate mortgages.
The 20 percent rule is implemented by FINMA, the main mortgage regulator in Switzerland, and is designed to prevent those who cannot afford a mortgage from getting one and then defaulting.
With an average four-room home in Switzerland costing more than 800.000 Swiss francs (much more in desirable areas like Zurich, Geneva and Basel), many cannot afford the six-figure deposit required to even begin a mortgage application. In response, Cactous has created a way to circumvent the requirement and open the housing market up to thousands of would-be homebuyers who are currently stuck renting.
Instead of a 20 percent deposit, borrowers put down a 10 percent deposit, with the bank lending the remaining 10 percent as a separate loan. The 10 percent invested by the bank would then be paid back once the rest of the mortgage was paid for.
Of course, there is a major catch. As part of the deal, Cactous would charge a 5 percent return on the loan, far higher than current interest rates. In all, Le News predicted that the interest rate on a 10 percent deposit mortgage would be 10 to 15 percent higher than a normal fixed-rate deal.
In essence, the company is offering a more expensive mortgage in the long term to allow people to buy homes in the short term. If this sounds familiar, trading and insuring these types of “pay later and at a higher price” loans were one of the driving factors that caused the global financial crisis in 2008.
According to Le News, it will now be up to FINMA to make sure Cactous has enough money to absorb the higher risk associated with the new deal. In all, the online newspaper concluded that while it may be a good way to get on the property ladder quickly, the mortgage comes with a much higher risk to those who might not be able to afford the deal.