Advantages of becoming a homeowner
Real estate appreciation
The appreciation of real estate is one of the most significant advantages of property ownership. The Swiss real estate market is known for its high value and stable development over many years. Land comes at a premium, and the demand for housing is particularly high near urban centers. Therefore, purchasing real estate provides a solid foundation for long-term value preservation and potential appreciation.
Protection against inflation
For a long time, it’s been a fundamental principle that tangible assets like real estate can serve as protection against inflation: when inflation is high, real estate prices rise, too. At the same time, the real value of the mortgage debt decreases because the currency loses value while the nominal level of the debt stays the same. However, the advantage of real estate as an effective hedge against inflation is a topic of ongoing discussions and has been the subject of numerous scientific studies.
Accumulating equity
In Switzerland, the so-called 2nd mortgage, which is the portion of the loan exceeding two-thirds of the property value, must be fully paid back by the time of retirement. Optionally, a portion of the first mortgage may also be amortised. Through amortisation, you gain equity: having paid back a part of your mortgage loan, you now own a larger share of your property. As a consequence, you will also benefit more from potential value increases.
Tax deduction of interest payments
In Switzerland, interest payments on loans can be deducted from your taxable income. This is one of the key financial advantages of property ownership: individuals who buy a property typically take out a mortgage, and since a mortgage is a form of debt, the mortgage interest as well as the debt are deductible. You thereby reduce your taxable income and wealth and, consequently, your tax burden.
Disadvantages of becoming a homeowner
High initial investment
One of the biggest financial obstacles for property owners lies in the substantial initial investment required. To purchase real estate, you need a significant amount of equity, as per Swiss law, at least 20% of the purchase price must come from your own funds. Additionally, there are one-time taxes and fees incurred when buying property in Switzerland, such as property transfer tax, land registry fees, and notary costs. These costs vary significantly from canton to canton.
Mortgage interest payments
Another financial drawback for property owners is mortgage interest payments. Interest rates directly influence monthly payments and, consequently, the overall costs of owning a home.
With large mortgage loans, interest costs are often one of the largest portions on your monthly expenses. Opting for a variable or tracker mortgage introduces added uncertainty in the form of fluctuating interest rates. In contrast, with a fixed-rate mortgage, you gain security, but are dependent on the current interest rates at the time that you take out your loan. Even if you already have a mortgage, redeeming and switching to a different model can be advantageous under certain circumstances. In any case, selecting a mortgage product requires a thorough analysis of the current and future interest rate environment.
Maintenance costs
The freedom to design and personalise your own living space is one of the key reasons why people buy real estate. In return, individuals are, of course, responsible for the maintenance of their property. Generally, the older the property, the higher the maintenance costs you should expect. Investments aimed at preserving a property's value are tax-deductible in Switzerland, just like mortgage interest payments.
Taxes applicable to property owners
As a property owner, you benefit from various tax deductions, as mentioned above. However, you are also subject to various taxes. The main tax drawbacks of homeownership are:
- Imputed rental value (Eigenmietwert/Impôt sur la valeur locative): The imputed rental value corresponds to a percentage of the rental income that the owner of a self-occupied property could expect to earn on the market. This value must be declared as taxable income. In 2023, the Swiss parliament decided in favour of abolishing imputed rental value for owner-occupied primary residences. The implementation of the new law is still pending.
- Wealth tax: Real estate constitutes an asset and must be declared accordingly. Mortgage debts can be deducted from real estate assets for the purpose of wealth tax.
- Property tax (Liegenschaftssteuer, impôt foncier): In over half of the cantons, there is a specific property tax. It is proportional and is calculated as a per mille rate of the property's value.
Opportunity costs
An often overlooked financial drawback of homeownership lies in what are called opportunity costs. The capital invested in your home could have been invested elsewhere. Opportunity costs correspond to the profit that could have been made using an alternative form of investment, such as the stock market. Especially with private residential properties, the annual appreciation alone is typically not high enough to match the return that could be obtained from other investment forms. However, maximum return is generally not the goal of private homeowners anyways – rather, most people choose to buy their own home because they want to – despite the associated costs.
Becoming a homeowner thanks to a financial advisor
The purchase of real estate or the renewal of a mortgage has far-reaching financial consequences. It always comes back to one question: Can I afford the property in question?
Financial consultation brings clarity and optimises your financial resources. With Strike, you will receive personal guidance from your dedicated expert on all financial matters related to your real estate purchase and beyond. Leveraging their extensive network, Strike can connect you with the best mortgage offers in the market if required. Schedule a non-binding initial appointment now.
