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Collateral value

General

The collateral value is the value of a property that is used by banks and other lenders as the basis for calculating a mortgage.

What is the collateral value?

The collateral value is the value of a property that is used by banks and other lenders as the basis for calculating a mortgage. Under Swiss law, the so-called lower of cost or market principle has been in effect since 2014, which means that the collateral value must correspond to either the sales price or the market value, whichever is lower.

How is the collateral value used?

The collateral value forms the basis for calculating the mortgage and the affordability. For example, if a house has been valued at CHF 1,000,000 and you buy it for a price of CHF 1,000,000, your bank will grant you a mortgage of CHF 800,000 at a typical loan-to-value ratio of 80%. However, if the property is valued by the bank at only CHF 800,000, you will only get a mortgage of CHF 640,000 according to the lower of cost or market principle, even if you paid one million. In other words, you will have to cover the difference between the mortgage value and the purchase price with additional equity.

By Charline Demange, July 25, 2023