Home ownership: yes or no?

One person’s benefit is another’s drawback

Surveys regularly show that a large proportion of the population living in Switzerland dreams of living in their own four walls. The reasons for this are manifold: from financial opportunities to the simple desire to be able to call your home your own, the list goes on.

There is no doubt that owning a home has many advantages. Nevertheless, a property purchase should be considered carefully, as it is not suitable for everyone (or rather, all life situations) equally. This is simply because you are committed to it for a very long time – and what means long-term planning security for some may suddenly turn out to be a ball and chain for others.

It all depends on the circumstances

Let us illustrate this with two examples: you are single, more of a globetrotter type, change jobs quite often and can also imagine working in London, Singapore or Buenos Aires – and so every few years, you take several months off to go travelling again.

Is there any point in owning your own home? In addition to the financial burden of mortgage interest, you also have to take care of the upkeep. In such a case, you are probably better off having a flat with a lease that you can terminate.

In the second example, however, let’s assume that you have a job and an environment here that you have grown to love and no longer want to do without. In this case, you no longer need big changes. Or you live with your partner and you are thinking about fulfilling your wish to have children (or have already done so).

Now, of course, you can very well imagine settling down in your own home permanently.

Advantages and disadvantages of owning a home

As we can see, there is no one-size-fits-all answer when deciding for or against owning a home. To help you better assess this for your own situation, we will show you the most important advantages and disadvantages of home ownership:

The ADVANTAGES of owning a home

• A property is considered a very solid investment – it is not for nothing that it is referred to as ‘concrete gold’.

• For this reason, it also provides a certain degree of protection against inflation (i.e., the so-called purchasing power of your savings can decrease as money devalues; in the case of property values, this is not impossible, but unlikely).

• A home of your own offers long-term planning security: with the mortgage lender, you arrange financing that allows you to budget properly for years.

• Of course, you also enjoy much more freedom of design in your own four walls: while tenants in rentals have to ask their property management for permission for this, that and the other, owners can model their home as they like (within the laws and regulations, of course).

• Tax advantages: mortgage interest and value-preserving investments in your property are tax deductible.

• Last but not least: you get to enjoy the feeling of living in a home that really belongs to you – and you don’t have to worry that you’ll suddenly be asked to move out.

The DISADVANTAGES of owning a home

• High initial costs and tied-up capital: understandably, property is not cheap – so purchasing a home is usually only possible with a mortgage and by contributing some of your savings. After that, all your money, including your debts, is tied up in this property (this is called ‘concentration risk’).

• This results in a long commitment to the mortgage lender, which you have to meet with interest and amortisation payments.

• Reduced flexibility would also be noticeable if you had to sell your property again (whether due to a divorce or an accident resulting in disability, for example): we’re not saying this isn’t possible, but it’s not quite as easy as terminating a rental property. A quick sale can also end up in you losing money, since you don’t have the opportunity to negotiate extensively. And in the case of a long-term fixed-rate mortgage, getting out of this contract may be expensive if you can’t find a suitable solution with the bank and/or the buyer.

• In your own home, you have to take care of everything yourself: for example, if your washing machine doesn’t work any more, that’s your problem – in a rental property, you simply call the property management and they immediately send someone to repair it. For your own property, however, such matters are up to you.

The money matters aspect

One of the most important aspects when deciding whether to buy a home is, of course, money. What it boils down to is that in order to purchase a property, both the loan-to-value ratio and the affordability must be right.

Loan-to-value ratio

The loan-to-value ratio indicates how much of your property is financed by mortgage (i.e. not by yourself). Here is a simple example: the purchase price of a property is CHF 1 million. In Switzerland, the rule is that you receive a maximum of 80% (i.e. CHF 800,000) of it as a mortgage – and pay 20% (i.e. CHF 200,000) out of your own pocket. Of course, you first must have this capital at your disposal, although there are still tricks that can be utilised such as the use of pension funds or an advance withdrawal of inheritance.

Affordability

Affordability, on the other hand, checks whether you can service the regular mortgage payments with your salary. The rule of thumb is that they may not amount to more than 33% of your income.