Loan-to-value ratio and debt ratio: understanding key mortgage criteria

It is calculated as the ratio between:

• the mortgage amount,

• and the value of the property.

Example:

• property value: CHF 1,000,000

• mortgage: CHF 800,000

  LTV: 80%

In Switzerland, this ratio is generally limited to around 80% for owner‑occupied properties.

The remaining portion must be covered by your own equity.

Debt ratio: your ability to bear the costs

The debt ratio measures the portion of your income used to cover property-related costs.

It typically includes:

• mortgage interest (often calculated at a theoretical rate),

• maintenance costs,

• and, in some cases, amortisation.

In practice:

• this ratio should generally not exceed one-third of your gross income.

Above this level, financing is usually considered unsustainable.

Why these criteria matter

These two indicators play a central role in financing decisions.

For the lender

• assess the level of risk

• ensure repayment capacity

• support financial stability

For the borrower

• avoid excessive debt

• secure the property project

• anticipate changes in market conditions, especially interest rates

They help ensure that your project remains viable even in less favourable scenarios.

How the two ratios interact

The loan-to-value ratio and the debt ratio must be considered together.

For example:

• a high LTV ratio:

  • increases the amount to be financed,

  • and may lead to a higher debt ratio

Conversely:

• higher equity:

  • reduces borrowing needs,

  • and improves financing conditions.

How to improve your situation

If your project does not meet the criteria, several adjustments are possible:

• increase your equity contribution,

• revise your purchase budget,

• adjust the financing structure,

• include additional income (e.g. co-borrower).

A structured approach helps align your project with your financial reality.

Integrating these criteria into your overall strategy

The loan-to-value ratio and debt ratio should not be viewed in isolation.

They form part of a broader reflection including:

• your wealth situation,

• your income,

• your long-term objectives.

The goal is to ensure a balanced and sustainable financing structure.