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Old 05.04.2011, 14:08
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Owning a house, building a new one - mortgage - help understanding what bank saying

We own a house with a small mortgage. We want to build a new house. We wanted to stay living in the current house until the new house was ready, move in to the new house, then sell the old house. The bank say we cannot do that as the borrowings that we would have for the 2 houses exceed the amount in mortgage that we are legally allowed to have.

Instead, the bank says we must market our current house, get a buyer, and sign a "promesse de vente" (basically contract for sale - such sale to happen as of a certain agreed date). When we have the signed promesse de vente, we can buy the land and the bank will effectively forward the equity to us in our current house then start lending on top of that, to enable us to build the new house. If we are very lucky, they say, we may have an understanding buyer of our current house who will let us defer actual sale until when the new house is ready. Unlikely but we would like to defer as long as possible so as to reduce to a minimum any time spent in rented accommodation. So this definitely means that we will still own house number 1 at a time when we have bought land and are building house number 2.

What I cannot understand, and what the man at the bank is wholly unable to explain to me (I tried to ask for over half an hour, drew diagrams everything, but he just kept saying the above and that it would be fine ...) (oh and we were speaking in French which I speak fluently so no language issues I'm afraid) is will we not at some period at least, own two houses (or at least our current house and a house in the process of construction), during which time, our borrowings spread across the 2 houses will exceed the figure he gave us as being our maximum amount we can legally borrow. He understood this question, he just kept on answering "no because you will have signed a promesse de vente so you won't own your current house". Well call me simple but until such time as the house is sold, yes we do own our current house.

This cannot be rocket science. We cannot be the first people in Switzerland to want to build a new house while currently owning a house - albeit one that is under contract to be sold. Can anyone do a better job of explaining to me why, just because we have signed a promesse de vente, the bank can effectively "ignore" the fact that we own a house and lend us enough money to buy land, then build the new house?

Confused of Baselland.
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Old 05.04.2011, 20:24
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Re: Owning a house, building a new one - mortgage - help understanding what bank sayi

I posted this question earlier this afternoon but have received no replies .. so am bumping the thread in the hope that some of you banker types have just returned from the office and can help explain what our mortgage advisor was unable to ...
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Old 05.04.2011, 20:35
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Re: Owning a house, building a new one - mortgage - help understanding what bank sayi

There might be a max amount of borrowings level you would be hitting should you take out both mortgages. Upon trying to transfer a mortgage we found that some banks had a max. borrowings level. We had a load of debt along with a load of cash. Paying back some of the mortgage might help you stay below that total borrowings allowed and allow them to process the new application.
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Old 05.04.2011, 20:44
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Re: Owning a house, building a new one - mortgage - help understanding what bank sayi

It's not something that the Swiss do, they prefer to rent, so the banks are not used to such requests.
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Old 07.04.2011, 14:49
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Re: Owning a house, building a new one - mortgage - help understanding what bank sayi

Well we have been to see another bank, who managed to explain what the first bank could not. (As an aside, I am always nervous when a specialist is unable to explain concepts in their area of expertise ... makes me think we don't want to be going with this bank if you can't even explain your stuff ..)

The idea is that we increase our mortgage to its maximum allowable amount (basically 80%) to fund the land purchase for the new house and quite a large part of the build cost. To the extent that we require further build cost, we can borrow this on top in the form of a baucredit (building loan). This is not classified as a mortgage, so in total we are able to borrow in excess of the limit of mortgage we can have based on the value of our current house. Obviously this will only be short term as it will be paid off as and when our first house is sold. The only qualification is that for the baucredit to kick in, we must have a signed contract to sell our current house, albeit that the house is not to be sold for some weeks or even months. It does all sound like a lot of interest but the great thing about CH is that interest will at the moment nearly always be less than paying rent for the equivalent property.

Sigh of relief. Now I understand it.

This bank also confirmed that we will be owning 2 properties at the same time (well our current house and the new house in the process of being built) so now I looking into CGT rollover.

It's hard work trying to move home/build a new place in CH. Don't do it unless you really really have to!

Thanks to MarieZug and Fatmanfilms for your replies.
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Old 08.04.2011, 08:54
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Re: Owning a house, building a new one - mortgage - help understanding what bank sayi

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It's hard work trying to move home/build a new place in CH. Don't do it unless you really really have to!
Amen to that - the process seems geared to the assumption that you will only buy one home in your lifetime. I'm sort of starting to entertain the idea of renting out our current home rather than selling it.

I hate the idea of being a landlord, way too much of a headache. But I've been playing with numbers a bit, and between the Swiss CGT and the CHF-USD exchange rate hit when figuring out US taxes (the current weak dollar makes the profit looks like a whole lot more than it really is, hence higher US taxes, gotta love that blue passport ) I wonder if there will be much left after we sell. Given the high demand for rental properties here, I'm starting to think that this may be an option.

But being a landlord... I can feel the migraine starting already...

Last edited by meloncollie; 08.04.2011 at 09:14.
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