Is it cheaper to rent or buy a house?

It all depends on mortgage rates

In the last one to two years, there has been a fundamental interest rate turnaround. Until the beginning of 2022, there was a period of record-low interest rates; alongside numerous benefits enjoyed by homeowners, living costs were particularly low, as well. For many years, the mantra was clear: buying is almost always cheaper than renting.

However, the situation has become more complicated with the interest rate turnaround. Due to the war in Ukraine and inflationary pressures, fixed mortgage rates rose sharply in the first half of 2022. While it was possible to secure a fixed-rate mortgage at an interest rate below 1% in early 2022, homeowners now had to pay about double to triple that amount. With the SNB's interest rate hikes, SARON mortgages soon followed suit. The question of whether renting or buying is more financially advantageous can thus no longer be answered as clearly in favour of homeownership.

In this article, we will give a status report on the question of "rent or buy", and explain the fundamentals you need to accurately assess your situation regarding a potential real estate purchase. If you prefer talking with an expert in person, you can always schedule your non-binding initial appointment with your local Strike advisor.

Beware of blanket statements

Since the end of the low-interest-rate phase, there have been repeated claims from various sources that renting is now always better than buying. However, relying on such blanket statements for a purchasing decision would certainly be the wrong approach. Whether a purchase is financially feasible or worthwhile depends on numerous factors, such as the property, location, and taxes in the area.

Additionally, your personal financial situation and available equity play a crucial role, as interest and amortisation payments directly depend on the mortgage amount. Blanket statements claiming that homeownership is always or never worthwhile can therefore never be entirely accurate. 

Financial impacts of buying property

To assess the potential impact of a real estate purchase on your personal financial situation, you need to understand the costs associated with a property purchase.

In Switzerland, banks provide mortgages up to a maximum of 80% of the value or purchase price of a property. The principle of lower value applies, meaning the loan is based on either the price or the market value, whichever is lower. The difference becomes relevant when a property is sold below or above market value. 

Since a mortgage can amount to a maximum of 80% of the price, as a buyer, you must contribute at least 20% of the purchase price through your own funds. Within the Swiss legal framework about homeownership (Accession à la propriété du logement / Wohneigentumsförderung), it is possible to withdraw up to 10% of the purchase price from occupational pension funds (2nd pillar). It is important to note that until retirement, the portion of the mortgage exceeding ⅔ or approximately 66% of the property's value must be amortised, meaning it must be repaid. This serves to mitigate the bank’s risk, as the income of the mortgage borrower typically decreases significantly upon retirement. 

In addition to interest and amortisation costs, one-time taxes and fees are incurred when buying a property. These include notary fees, land registry fees, costs for the debt certificate, and transfer taxes. It should be noted that not all these taxes and fees are levied in every canton, and their amounts also vary between cantons.

In general, total costs, including mortgage interest, amortisation, maintenance, and ancillary costs, should not exceed one-third of your income. Banks use an imputed interest rate of 5%, which is well above the expected average interest rate, to ensure that the financial burden of the property remains within your financial means and financial stability is maintained (so-called affordability calculation).

Rent or buy a home: advantages and disadvantages

Example calculation: rent or buy a home

To calculate whether you can afford a specific apartment or house and to assess the financial impact a purchase would have on your budget, you may first want to do an affordability calculation. 

Please note that the criteria for income and equity mentioned above should only serve as a rough estimate, as each bank may assess your income and the property slightly differently. This means that even if one bank rejects financing for your desired property, you may still have intact chances with another bank. 

To know whether you should buy or rent a house or apartment, compare the estimated monthly costs of both options. The following costs will arise when you buy or rent: 

Add up the costs of both options and compare the results. It's important to note that the interest burden and amortisation significantly depend on the amount of the mortgage: the more equity you have available, the lower your monthly costs will be. 

If you have questions about any of the listed cost items, feel free to contact us anytime. Call us or click on the banner below to talk to a financial advisor: 

Expert support in financial matters

Are you considering a real estate purchase or are already on the lookout? Perhaps you've already found your dream property, but you're still unsure if you can really afford it?

Financial consultation provides clarity and maximises your financial resources. With Strike, you'll receive personalised advice from your dedicated expert on all financial matters related to your real estate financing and beyond. Your personal advisor takes care of all administrative tasks and analyses your income, assets, and retirement situation to provide optimal guidance on the financial implications of your purchase. Additionally, we can connect you with financing solutions that best suit your situation.

The Strike team look forward to your call and are ready to assist you in turning your real estate purchase into reality. Seize the opportunity: make your purchase a success with Strike, like hundreds of satisfied customers before you!