Financing a purchase after Basel III: what changes for equity and lending

Basel III strengthens the capital that banks must hold, and this requirement feeds through to the way a mortgage is granted. In practice, your bank examines your personal contribution and your ability to bear the costs more rigorously, but the foundations of a good file remain the same.

Basel III in brief

Basel III is an international prudential framework that sets how much capital a bank must keep in reserve against the loans it grants. Switzerland transposed it into the Capital Adequacy Ordinance, whose revised version came into force on 1 January 2025. FINMA has also recognised the banking sector's self-regulation as a minimum standard. The idea remains simple: a bank that lends must have a safety cushion proportionate to the risk of the loan. A loan considered riskier ties up more of the bank's capital, which weighs on its decision.

What it changes for your equity

The new version weights the risk of loans more finely according to the type of property. A home you live in is not treated in the same way as a building intended for rental income, which now calls for higher requirements on the bank's side. For you, as the buyer of a main residence, the familiar benchmarks still hold. You must contribute at least 20 per cent of the property's value in equity. Of this 20 per cent, at least 10 per cent must come from so-called hard equity, that is, excluding 2nd pillar assets. In other words, your savings or an advance on inheritance count towards this hard share, whereas a withdrawal from your pension fund cannot replace it. This rule already existed, but the bank now checks it with greater attention.

Financial capacity and the notional rate

The most frequently misunderstood point concerns affordability. The bank does not calculate your repayment capacity on the actual rate of the moment. It applies a deliberately higher notional rate, to check that you would remain comfortable if conditions tightened. Added to this notional rate are the amortisation of the debt and the estimated maintenance costs of the property. The total of these annual costs should not exceed around one third of your income. It is this principle of prudence that determines the amount you can borrow, regardless of the rate advertised today. Basel III does not alter this logic, it reinforces the rigour with which it is applied.

The lending value

Before granting a loan, the bank estimates the value of the property for its own calculation, known as the lending value. It generally uses the more prudent of the purchase price and its own valuation. If its valuation is lower than the negotiated price, the difference is your responsibility, in addition to the expected equity. This is a reason to know the market value of the property before making an offer. An independent valuation helps you assess a price and anticipate how the bank will read it.

Preparing a solid file

None of this puts home ownership out of reach. A clear file remains the best answer to stricter requirements. Gather proof of your equity and its origin, along with your proof of income. Add a realistic view of the property you are targeting and its price. The more comfortable your hard equity contribution, the more room for manoeuvre you have. And the earlier you frame your budget, the better you avoid a purchase commitment that the financing cannot follow. The tax aspects of a 2nd pillar withdrawal or a gift deserve to be checked with your bank or an adviser.

At CI-Léman, we help you prepare your project upstream, value a property at the right price and approach the bank with a clear file. To see our properties to buy or frame your financing and equity, talk to a broker at our agency.

Sources

• FINMA, recognition of the revised self-regulation on mortgage financing as a minimum standard: finma.ch
• Banking self-regulation guidelines on mortgage financing: finma.ch
• Federal Council, revision of the Capital Adequacy Ordinance and implementation of Basel III on 1 January 2025: admin.ch