Financing renovations: mortgage, construction loans, and subsidies

Renovating a property represents a significant investment. In Switzerland, several financing options exist, from mortgage increases to energy subsidies. This guide helps you choose the best approach for your project.

Financing options

1. Increasing your existing mortgage

Increasing the mortgage is the most common solution for financing major renovation work. The bank grants an additional amount secured by the property, whose value increases thanks to the improvements.

Conditions:

• The total LTV (existing mortgage + increase) must not exceed 80% of the new property value (value after renovation)
• Affordability must be sufficient with the total mortgage amount
• The bank typically requires a detailed quote and work plan
• Disbursement can be staged according to work progress

Example: Current property valued at CHF 800,000, mortgage of CHF 550,000 (69% LTV). Renovation estimated at CHF 150,000, of which CHF 100,000 is value-adding. New estimated value: CHF 900,000. The mortgage can be increased up to CHF 720,000 (80% of 900,000), an increase of CHF 170,000 -- sufficient to cover the works.

2. Construction/renovation loan

For major works, the bank can set up a temporary construction loan that is later converted into a mortgage upon completion. This mechanism is suited for large projects:

• The loan is disbursed in tranches as work progresses
• Interest is calculated only on the amount drawn
• At completion, the loan is consolidated into the mortgage
• Interest rates are generally slightly higher than for a standard mortgage

3. Personal loan or consumer credit

For small-scale work (CHF 10,000 to 50,000), a personal loan may be considered. It is faster to obtain but interest rates are significantly higher (5% to 10% versus 1.5% to 3% for a mortgage). This option is rarely recommended for large amounts.

4. Personal equity

Financing through personal savings avoids additional debt. This is ideal if you have sufficient liquidity. Pillar 3a withdrawals can also be used (withdrawal for renovation of primary residence is permitted every 5 years).

Subsidies for energy renovations

The Building Programme

The Building Programme (Programme Batiments), funded by the federal government and cantons, offers substantial subsidies for energy renovations. Subsidized measures include:

• Thermal insulation: Facade, roof, floor, windows -- subsidies of CHF 40 to 80/m2 depending on the canton
• Heating replacement: Switching from fossil fuel heating (oil, gas) to a heat pump, wood, or solar -- subsidies of CHF 2,000 to 10,000+
• Photovoltaic installation: One-time remuneration (Einmalverguetung) from Pronovo, plus cantonal subsidies in some cases
• GEAK Plus: Subsidized energy audit to establish a comprehensive renovation plan

Amounts vary considerably from one canton to another. In Geneva, Vaud, and other cantons in French-speaking Switzerland, cantonal programs supplement the federal program. It is essential to apply for subsidies before starting the work, as retroactive applications are generally refused.

Tax deductions for energy-saving investments

Since 2020, investments aimed at saving energy and protecting the environment are fully deductible from taxable income at the federal level and in most cantons. This includes:

• Thermal insulation of the building envelope
• Replacement of fossil fuel heating systems
• Installation of solar panels
• Costs of removing existing installations

Deductions can be spread over three consecutive tax years if the amount exceeds taxable income in a single year. This is a major tax advantage that significantly reduces the net cost of the renovation.

Planning your renovation financing

Step 1: Define the project and estimate costs

• Establish the list of planned works
• Obtain multiple quotes from qualified contractors
• Distinguish maintenance work from value-adding improvements
• Budget a 10-15% margin for contingencies

Step 2: Identify available subsidies

• Check the Building Programme website for your canton
• Request a GEAK Plus audit for major energy renovations
• Submit subsidy applications before starting the work

Step 3: Evaluate mortgage financing

• Have the new property value estimated after works
• Calculate the LTV after mortgage increase
• Verify affordability with the new amount
• Compare offers from several banks (rates, conditions)

Step 4: Optimize taxation

• Plan works over multiple tax years if amounts are significant
• Separate maintenance invoices (deductible) from value-adding invoices (not deductible)
• Include energy-saving investments to maximize deductions

Key considerations

• Subsidy timing: Always apply before starting the work
• Loan-to-value ratio: The mortgage increase must not push the LTV above 80% of the post-renovation value
• Affordability: Verify that your income supports the new charges
• Building permits: Some renovations require a construction permit
• Coordination: Plan financing, subsidies, and tax deductions in advance