The first step on the property ladder is one of life’s key moments. It can be easy or the culmination of years of preparation, saving, and sacrifices. With a multitude of barriers and an offer that is still relatively limited, the home-owning rate is still low (in Switzerland less than 40% of the population own property, far from the European average of 70%). Historically low interest rates and a year spent within four walls has left us with the likelihood of an unprecedented appetite for taking the plunge and becoming a homeowner. During the past year, real estate brokers and banks have seen no slowing down, rather the opposite. In 2020, despite the pandemic, demand for housing was very high. A rise in demand that was observed both in urban centers and rural and mountain areas, which probably attracted some buyers looking for open spaces after a year of lockdown.

Rents remain high

The pressure on the rental market is nothing new. A very low vacancy rate, applications piling up with property managers, and rents that take up an ever greater share of the household budget. The positive migration flow into Switzerland is, however, the main reason for the pressure that increases demand and keeps rents high or even pushes them higher, making real estate buying even more interesting. For example, a three bedroom apartment in Lausanne would cost at least 2,000 CHF per month while mortgage interest payments as a result of buying the same apartment would not reach more than 1,000 CHF.

Even though the economic advantage is obvious, Covid-19 has taken over as the main concern of households and it can be intimidating when considering a commitment on this scale. The issue, therefore, is to find out what impact the health crisis will have on the attractiveness of real estate and mortgage loans in 2021.

Covid-19 has not gripped real estate

The crisis has affected many business sectors and put the brakes on some real estate acquisitions but abundant investor liquidity, which favors brick and mortar instead of investments with banks who are today offering yields that are unattractive or even negative, has largely compensated for this slow down.

Of course, the considerations for private buyers who are looking for a primary or secondary residence are not the same. The pandemic and the uncertainty that goes hand-in-hand with it may affect the confidence and optimism of a potential buyer. Job security appears to be the main worry for anyone who wants to own real estate. However, when the financial burden of a mortgage loan represents, at most, half of the rent that would be paid, which is due regardless of the professional situation at the time, we quickly see the solvency advantages to be gained from owning property.

The Swiss Confederation’s aid measures (RHT, Covid loans, extension of the unemployment period/framework) also helped minimize the financial impact on households that continue with their ongoing purchases.

Delays caused by Covid – who pays?

During the first lockdown, some buyers who had reserved their mortgage rate in advance were unable to receive the keys to their property on the date it was originally scheduled for, resulting in a delay to the effective start of the loan. This is a situation where the lending bank may impose late or termination penalties but this risk is not exclusive to Covid-19 and has always existed, and negotiations are always possible.

As for construction and off-plan purchases, one might think that worksites were stopped and costly delays occurred but design and construction companies and developers quickly adapted to their new working conditions and work is going ahead at a good pace. Anecdotal cases of delays have been resolved through mediation during which all the stakeholders have shown solidarity in the face of a common enemy – Covid-19.

On the other hand, construction companies have seen some costs increase due to health obligations such as cleaning machinery or restrictions on the number of workers per square foot. Legally, these costs can be attributed to the party that made the contract with the design and construction company. However, as for problems related to the start of mortgage loans, we have advised our clients in this situation to seek amicable solutions as well-known promoters and construction companies pay a lot of attention to their image and opt for a flexible approach. To date, construction companies have adapted extremely well to the health restrictions and the additional costs are very low, if they exist at all.

This crisis negatively affected certain projects in the first few months but it also highlighted the ability of each economic actor to demonstrate flexibility and solidarity faced with an unprecedented situation. As a consequence, we have been able to support all our clients who have experienced problems caused by Covid to find the best outcomes. Indeed, lenders and sellers do not want the buyer to suffer damage or loss for a situation beyond their control and a solution has always been found to prevent this from happening.

Covid or no Covid, the transition from the former owner (whether buying or renting) to the new owner is a delicate phase that requires precise planning. All possibilities should be considered including implementing a rate fixing strategy, a step that should certainly not be under-estimated if it can take place more than a year before the keys are handed over.

Changes to rates

Despite the fact that fixed mortgage rates have risen since the beginning of the year, they still remain at historically low levels and continue to offer undreamed of possibilities. Some analysts say that the rates will continue to rise, others predict an unprecedented economic crisis that could lead to a new drop in rates. The truth, naturally, is somewhere in between. Mortgage rates should not change significantly this year despite a degree of volatility due to uncertainly, which favors fixing them for as long as possible. But, in doing this, make sure that the duration of the mortgage loan corresponds to the project as a sale before the term of a loan could result in penalties for early repayment.

In short

On the property market, 2021 has continued the trends of previous years with very attractive mortgage rates, lenders who opt for the purchasing strategies of aggressive clients, and a rental market that is still more prohibitive. While 2020 was frightening, the whole value chain from banker to worker quickly (and competently) adapted to the situation. If you want to buy a house, 2021 remains a year of opportunity.

Simulate your project online or contact our teams to get help.