In order to find out how much you can borrow, it is important to understand how banks are computing how much they will lend you.

In Switzerland, banks currently use a theoretical interest rate as a reference (which changes but, for example, could be 5%). They are usually also accounting for a certain percentage of amortization per year. What’s more is that, depending on the bank, they will also take account of maintenance costs typically between 0.5% and 1%.

Having calculated the total costs of the house, it should be lower than 33% of your income. For example, if we use 6% as the figure mentioned above, this means 6% of the mortgage cannot exceed 33% of your income.

You need to take 6.2% of the value of the loan into account, not of the value of the house. In general, the mortgage will be 80% of the house value.

Depending on the bank, how they compute your income is a bit different. But in most cases, they will consider your previous year’s taxable income. There are, of course, some exceptions, though these will be based on individual circumstances and could impact what price range you can afford.

In the UK, mortgage lenders usually take into account the loan-to-income ratio (this is the amount you want to borrow divided by how much you earn) and your deposit. It is typical that the most you can borrow is capped at 5x your annual income (subject to status).

In addition, they need to know the monthly payment you can afford, after looking at your outgoings, debts and liabilities as well as your income. This is known as an affordability assessment.

Nowadays, mortage lenders also ‘stress test’ your ability to keep up with payments. This is to ensure you will still be able to afford the repayments if there are interest rate rises or lifestyle changes such as redundancy or having a child.

Depending on the result of this ‘stress test’, a mortage lender may limit how much you can borrow.