Buying or renting in Switzerland? 9 considerations reviewed
In Switzerland, there are more tenants than owners, even though the number of home owners has risen from 30% to 40% over the past 20 years. Why? Is it better to buy a home than to rent it? 9 important criteria.
🗓 ️ What is the monthly cost?
In the current context of low interest rates, the expenses of repaying a mortgage loan are generally lower than a rent.
Wondering how much you could save by becoming a home owner?
💰 How much capital do I need?
Becoming a home owner requires a certain minimum equity, usually around 20% of the property price, and you also need to add in the purchase fees which can be between 3% and 5% of the sales price. Even while it is possible to find alternative solutions so you don't need quite as much equity, this still represents a significant sum that you will no longer have available.
Subsequently, you may also have to deal with renovations, which also requires a certain budget. However, you can also include the amount you would need for renovations in the financing request when you come to buying.
By remaining a tenant, you still have this capital for other projects.
👨🦳 What will the impact be on my retirement?
Real estate is an increasingly popular form of secure investment. Plus, you won't have to worry about paying too much rent when you retire.
On the other hand, be careful, because to keep your mortgage loan, you still need to comply with the debt ratio rule of 33% at the time you retire. As such, you need to consider this situation before setting up your financial strategy or during a renewal
🤸♀️ How much flexibility do I have?
As a tenant, you keep your freedom. Any changes are possible without much impact:
- family situation
- town or city or country
As a home owner, you have less flexibility and such changes remain possible but they'll be trickier and need more preparation and/or time.
🪜 Can I personalise the property I'm renting?
As a home owner, you can do what you like to your home when it comes to home design, which isn't the case if you're a tenant. Also, you should remember that maintenance costs and renovation work are deductible from your income.
When you rent a property, you don't have much margin for manouevring and even a simple lick of paint has to get prior approval or you must return everything to its original state when you leave.
💸 What will the impact be on my taxes?
Becoming a home owner impacts your taxes in several ways, including:
- transfer duties
- using the 2nd and/or 3rd pillar of the Swiss pension system
- rental value
- property tax
People often think that it is more advantageous to be a homeowner, because you have the option of deducting the mortgage interest charges from your income as well as the maintenance costs. This advantage is however counterbalanced by taxation on the rental value. This value represents the value you would be able to get from renting your property and increases your taxable income.
Lastly, in real terms, the tax gap between tenants and home owners is fairly small and depends on several factors. See a calculation example
⚠️ What are the risks?
As a tenant, the main risk you run is termination of your rental contract. You still have the right to extend the lease so that you can find equivalent accommodation within a reasonable time.
As a property owner, the risk lies more in major changes such as the loss of employment, the death of a partner or a divorce which can make paying off the mortgage loan difficult and lead to an early termination.
Cancelling a mortgage before the term set by the contract can result in a penalty from the lender of several thousand francs. However, you can always sell the property and transfer the fixed mortgage to a new owner, providing that the new buyer and the mortgage lender agree.
🧩 How hard is it?
While it may sometimes be hard to find accommodation to rent, the paperwork is pretty simple, whereas the purchasing process has a lot of stages and documents. This sometimes rather long and convoluted process can seem discouraging, but with good support, the whole process goes a lot more smoothly and purchasing is much more stress-free.
🤯 What about the mental load?
When you're renting and something has gone wrong, you just need to call the rental manager who sorts it out and pays the costs.
As a home owner, you're the one who has to sort out (and pay) for any inconvenient issues that may arise.
So, as you can see, becoming a home owner isn't a decision you take lightly. There are lots of considerations to take into account that may vary based on your personal situation and your life plans.
Do you want to take stock of your situation and look at these various considerations objectively? Our advisors are at your disposal, free of charge and without incurring any obligations.