The 20% Equity Rule — What It Actually Means and Where the Money Must Come From

The headline everyone knows: Swiss property requires 20% equity. The structure underneath — which almost nobody prices in until they're in a bank meeting — is that where the 20% comes from is regulated too, and the composition rule quietly redesigns your savings plan years before any purchase.

The fact pattern

For an owner-occupied home, banks finance at most 80% of the property value. Of the 20% you bring, at least 10% of the property value must be "hard" equity — money that is not from your Pillar 2. The other half may come from pension sources.

On a CHF 1.5m apartment: CHF 300,000 equity, of which at least CHF 150,000 must exist outside your pension fund — cash, investments, 3a, gifts or inheritance advances. And the real cash requirement is higher still: purchase costs (notary, land registry, transfer taxes where applicable — typically a low single-digit percentage, canton-dependent) must be paid in cash on top, and banks apply the 80% to their valuation — if it comes in below your purchase price, the difference is yours to cover in cash as well.

What counts as what

Hard equity: savings, taxable investments, Pillar 3a (withdrawable or pledgeable for owner-occupied property — one of its designed purposes), gifts and inheritance advances. Soft equity: Pillar 2 capital, via early withdrawal or pledge.

Withdrawal vs pledge is a real decision: withdrawing Pillar 2 reduces your retirement capital and insured benefits and triggers a capital-payment tax now; pledging leaves the pension intact but means a larger mortgage and stricter affordability numbers. Households that discover this trade-off at the bank choose under time pressure; households that model it a year earlier choose deliberately.

The consequence for your savings plan

The 10% hard-equity floor is why "we'll use our pensions for the deposit" is only half a plan. A purchase in ~5 years means the hard half must be built through savings — and, because it has a date, held in cash-like instruments rather than equities (see investment readiness, condition four). This is also where 3a earns double duty: tax deduction on the way in, hard equity on the way out.

And remember the rule that bites after the equity rule: affordability. Banks stress-test the running costs at a theoretical ~5% rate — passing the 20% test while failing the stress test is common at exactly the price points internationally mobile professionals shop in. Read the stress-test article as this one's second half.

What are you optimising for?

Renting is not a deficiency — the equity rule is only relevant if ownership is actually the goal. But if it is, the plan has three named numbers: target price, hard-equity requirement (10% + costs + valuation buffer), and the date. From those, the monthly savings figure falls out mechanically.

Control questions: If you bought at your target price, how much hard equity do you hold today — cash, investments, 3a, confirmed family support? What's the gap? And is the money for it accumulating somewhere with a matching horizon?