On the role of equity and pension savings in the financing of homeownership in Switzerland

Purpose Mortgage loans are crucial for household finance and retail banking. The Swiss mortgage market has unique characteristics and is one of the largest in the world despite the low homeownership rate. This study explores the equity composition of homeowners’ mortgages in Switzerland, a subject covered by limited academic research. We aim to identify typical homeowner profiles based on their distinctive equity contributions. Design/methodology/approach Our data contain information on mortgage own equity, the mortgage market, socio-demographic and wealth factors of 629 Swiss homeowners in 2022. We perform a k-means clustering algorithm to determine the homeowners’ profiles and use multinomial logistic regression to study the effects of the factors that determine these profiles. Findings Our main findings reveal four typical profiles. The largest group meets the minimum equity requirements mainly through cash and limited recourse to pension savings. We show that theoretical affordability, purchase price and household income are relevant factors in determining the profile. Homeowners with higher equity contributions have lower incomes and buy more expensive homes. Practical implications These findings can guide policymakers to identify and address potential pension gaps resulting from property acquisition. Originality/value This study explores the equity composition of homeowners’ mortgages in Switzerland, a subject covered by limited academic research.