Marriage, children and buying your own home – many of these life-changing decisions are ultimately made based on your own financial position. The money available probably has the greatest influence over the latter decision: whether you should buy or rent your home. Answering this question is far from straightforward. Moving into an apartment or a house marks a new chapter in life. This article explains what you should bear in mind when making this decision.

Is buying an option?

Before you consider the question “Rent or buy?”, you should be able to check off two requirements for a possible purchase:

• You must have enough equity – i.e. at least 20 percent of the purchase price of the property in question.
• You must meet the affordability criteria. This means that the total housing costs must not exceed one third of your gross income. The housing costs consist of 5 percent imputed mortgage interest + amortization + property running costs (1 percent of the collateral value). Use our online calculator to find out quickly what you would be able to afford.

Rented apartment vs owning your own home: a comparison of monthly housing costs

If these two barriers to a purchase are likely to be overcome, it is important to compare the monthly housing costs.

For tenants, these are as follows:

• Net rent
• Running costs
• Insurance (household contents, liability, etc.)

Homeowners have the following costs:

• Mortgage interest
• Amortization of the mortgage
• Property costs (repairs and maintenance)
• Running costs
• Insurance

The cost points to be compared are rent including running costs vs mortgage interest + amortization + running costs + repairs.

Work out the mortgage interest accurately

Mortgage interest rates are subject to fluctuations. If you put down a deposit of only 20 percent (which is the minimum amount), your monthly mortgage payments can quickly increase if interest rates are raised, perhaps even amounting to more than rent. To avoid any unpleasant surprises, we recommend calculating the current interest using our mortgage calculator. The figures you’ll require are the purchase price of your property, how much deposit you can put down and your annual income. You’ll then receive a financing proposal based on what you can afford – in other words, the mortgage interest you can pay with your salary – and an overview of the costs you can anticipate.

In hotspots, renting is often better than buying

Throughout Switzerland, buying is still generally cheaper than renting. Although it is the other way round in very expensive property hotspots.

For example, let’s look at a 4.5-room apartment with an area of 110 square metres in the city of Zurich. After Geneva, Zurich is Switzerland’s second most expensive city when it comes to rental prices. But property prices in Zurich are so horrendously high that it’s not worth buying.

Housing cost comparison: renting vs buying in the city of Zurich

Comparable properties: 4.5-room rented apartment, 110 square metres, and equivalent owner-occupied apartment in the city of Zurich.

Renting

Monthly rent including running costs: CHF 4,000

Buying

For the sake of simplicity, the example uses an interest rate of 2 percent for the first and second mortgages.

The amortization of the second mortgage should be viewed as “forced savings” because, compared to rent, this amount does not go to waste, but instead increases the equity in the property. If this were taken out of the calculation, an owner-occupied home would be more attractive.

Buying has tax advantages

Buying has tax advantages over renting: you can deduct both the financing costs (interest and amortization) and the maintenance and renovation costs from your income and thus save on taxes. Rental payments, however, disappear from your bank account with no impact on your taxes.

On the other hand, homeowners have to pay tax on the rental value of the property that they occupy.

The rental value has been a political hot potato for decades. There have been many calls for its abolition. However, abolishing the rental value would also mean largely abolishing the tax benefits for owners (deducting financing and maintenance costs).

What else needs to be considered?

The decision for or against buying depends on more than just the housing costs. There also questions such as:

Are you settled or do you still want to travel?

Will you want to move abroad or to a different city for a longer period of time for the sake of your career? By owning your own property, you are opting for greater security, but also less flexibility.

Where would you like to live and are there suitable properties there?

• Are you planning to move to the countryside, into a suburb or right into the heart of the city?
• Do you need good public transport links, easy motorway access or do you prefer to cycle?
• Do you have specific requirements in terms of the facilities the town or municipality can offer?
• What kind of neighbourhood would you like to live in?

What’s important to you when it comes to style and facilities?

• A basic old building or a modern new development?
• Do you want a garden, a balcony or neither?
• Do you want a garage, parking space or prefer not to have a car?
• Should the property have one floor or several?
• Disabled access or a staircase?

What are your expectations of your living room?

• How many people are going to live in your household, and who are they?
• Should there be room for pets?
• How many rooms do you need for eating, sleeping, living or perhaps hobbies or work?
• How many bathrooms does the property need to have, and how should it be fitted out?
• Is the kitchen and dining room a priority because you love cooking, or is that less important to you?

Are you prepared to bear the responsibility and costs?

Do you dislike knowing that you could be told to leave your home? Or that someone is profiting from your rent? Or that you have to ask if you want to re-tile the bathroom? When you own your home, you are your own boss and can do (almost) anything you like.

As a tenant, you do not have these freedoms. But as a tenant, you can simply call the property management company and ask them to take care of the broken heating, the dripping tap or the defective door lock and pay the repair bill. In your own property, however, you are responsible for your own repairs and bills.

Is owning a home your ideal investment strategy?

If investment is your primary goal, then investing in your own property is an obvious, sensible and comparatively low-risk option. However, there are investment options with likely larger and faster returns.

A decision for your heart and your head

Deciding to own a home and get a mortgage is more than just a financial decision with long-term impact. Above all, it is a lifestyle decision or a new phase of life for which you and, if applicable, your partner should feel ready.