Buying a property
Should I buy or rent a property? Which option is better for you?
A range of factors affect the decision to buy or rent a property. Comparis can help you decide between renting and buying.
01.04.2022
iStock / fizkes
1. Renting or buying – which is right for me?
Your income and savings are the main factors that determine whether you can afford to buy your own home. However, other factors also decide whether renting or buying is your best option. Home ownership also has its downsides.
The decision regarding your future living arrangements must also reflect your willingness to take risks and your need for flexibility.
What are the advantages of home ownership?
Creative freedom: you can redesign, renovate or modernize your property in any way you like as long as it's legal. Tenants have little creative leeway, and if they do make any alterations, they must return the property to its original state at their own expense when they move out.
Security: homeowners don’t have to worry about the landlord giving notice to vacate. Tenants, on the other hand, can have their contracts terminated at any time subject to the notice period.
Tax breaks: mortgage interest is tax deductible, as are expenses associated with preserving the property's value, investments in environmentally friendly and energy-saving measures, and contributions to the renovation funds of condominium associations. There are no property-related tax breaks for tenants.
Provision for old age: homeowners have usually paid off most of their mortgage by the time they approach retirement. This means that they enjoy significantly lower housing costs than tenants when they retire.
Increase in value: well-maintained properties in attractive locations will usually increase in value over time.
What are the disadvantages of home ownership?
Finance: as a general rule, banks will only finance home purchases if you meet the affordability and minimum deposit requirements.
Maintenance and repairs: regular investments are required to maintain the value of a property in the long-term. Heating systems must often be updated to meet cantonal requirements. This is something that tenants don't need to worry about.
Change in value: the housing market is subject to a certain volatility. The property’s selling price may be less than the price you paid. If you sell at more than you paid, you will be liable for property gains tax.
Imputed rental value: homeowners must pay tax on the imputed rental value, which is declared as fictitious income.
Flexibility: tenants can move home for personal or professional reasons at any time. You can soon end a tenancy agreement, but the process of selling a property can be more protracted. Homeowners risk having to pay an early redemption fee if they need to repay their mortgage prematurely in order to sell their home.
2. Renting or buying – the pros and cons at a glance
| Pros | Cons | |
|---|---|---|
| Renting a property | Flexibility to move Only minor expenses for maintenance and repairs No imputed rental value Frees up capital |
Little creative freedom in your home Risk that lease will be terminated No tax breaks Consistent housing costs for seniors |
| Buying a property | Plenty of creative freedom in your home Secure living situation Various tax advantages Lower housing costs for seniors Increase in value possible |
Considerable financial resources required Regular expenditure on maintenance and repairs Imputed rental value Less flexibility to move Negative equity possible |
A rent-to-own agreement combines rental and purchase. A rent-to-own agreement gives you the right to purchase a rental property at a later date. The owner determines not only the rent but also the purchase price for the property at the time you sign the contract. The monthly rent will be credited to you should you later buy the house or apartment.
Rent-to-buy arrangements make sense especially for people who don't otherwise have enough for a deposit. In the case of rent-to-own, you can take out a mortgage at the earliest 18 months before taking over the property.
3. What are the monthly costs of renting or buying?
Costs of renting
For tenants, the monthly housing costs comprise:
Net rent
Utility expenses
Deposit of up to three months' rent or premiums for rental deposit insurance
Premiums for contents and personal liability insurance
While contents and personal liability insurance is not compulsory, they are strongly recommended in view of possible damage to the tenant's possessions.
Costs of owning
For homeowners, housing costs include:
Mortgage interest
Repair, maintenance and utility costs (including insurance premiums)
Amortization
Homeowners should also put aside money for future renovation work, especially if they live in an older building.
4. Example of monthly costs for homeowners
The rent for a rental apartment is clearly defined at the time of signing the contract. As a result, you are unlikely to have any nasty surprises when it comes to monthly expenses.
What it costs to rent in Switzerland's biggest cities is revealed in the Comparis rent report. In some of the largest Swiss cities, rents for residential properties have risen further in the past five years – especially in Zurich and Geneva. Including utility bills, renting a 4.5 room apartment (of 110 m²) in the city of Zurich currently costs 2,980 francs (median, as of 2022).
It is a little more complicated to calculate the monthly costs of home ownership. Below are two examples of the regular costs associated with owning an apartment.
The loan-to-value ratio in the examples is around 80% in each case, while affordability is around 33%. A ten-year fixed-rate mortgage is taken out on 66% of our fictitious property, with an interest rate of 0.8%. 14%°of the purchase price is financed by a second mortgage (for the sake of simplicity, also at 0.8% interest). The second mortgage must be amortized over 15 years. The utility costs amount to 1% of the property’s value.
| Apartment (4.5 rooms, 110 m²) in Zurich | Apartment (4.5 rooms, 110 m²) in Switzerland | |
|---|---|---|
| Purchase price (median)* | CHF 1,650,000 | CHF 814,000 |
| Total income | CHF 290,000 | CHF 150,000 |
| Deposit | CHF 330,000 | CHF 164,000 |
| Mortgage amount | CHF 1,320,000 | CHF 650,000 |
| Mortgage interest costs per month | CHF 880 | CHF 433 |
| Utility and maintenance costs per month | CHF 1,375 | CHF 678 |
| Total monthly costs (excl. amortization) | CHF 2,255 | CHF 1,112 |
| Amortization costs | CHF 1,100 | CHF 542 |
| Total monthly costs (incl. amortization) | CHF 3,355 | CHF 1,654 |
*Source: Wüest Partner (in German only)
5. Conclusion: as a rule, buying is cheaper than renting
The housing costs associated with owning a 4.5-room flat are slightly higher in the city of Zurich compared with rental costs. When you consider the situation over the whole of Switzerland, however, then home ownership becomes a more favourable option. The pendulum swings clearly in favour of homeowners if amortization costs are not included.
Amortization is essentially a form of compulsory saving. The amount spent on repayment is simply transferred from your account to the property. Therefore, unlike mortgage interest costs, amortization costs are not “lost”. If amortization is factored out in the above examples, the monthly housing costs amount to 2,255 and 1,112 francs respectively, which is significantly lower than the rental prices for a comparable apartment.
How much should you spend on your dream home?
This article was first published on 20.11.2020