When you are a family with kids you probably want to own a home. Buying a house or an apartment has been always a symbol for starting up the family as well as a good investment and a financial insurance for the future of your kids. However, constant increases in prices on the Swiss property market made many families in Switzerland stuck paying the highest rents in Europe. We decided to ask the experts about ways young people with children can afford buying homes in Switzerland. Mrs. Bader is expert at Immobilien Börse AG and hence has experience in working with families and helping them to better understand the situation at the Swiss property market.
FF: What`s going on on the property market for families with kids in Switzerland now? What are the trends for buying or selling family homes?
MB: The demand for condos (for example, 5-room ground floor flat) is still high, as the prices are significantly lower compared to single-family houses, although the buyers expectations are often not met in terms of location or price. There is currently a surplus in Southern Switzerland and on Lake Geneva. The high demand for condos on the one hand, and the decline in construction activity on the other hand, leads to an expected price increase of 0.5%.
The demand for family houses remains high. Due to less and less construction areas only a few are built new. The combination of the high demand and slow supply of new houses leads to an expected price increase by about 0.8% in the current year.
FF: How can a young family afford to buy property at the fair market value in Switzerland? What would be the down payment, the loan interest rate, etc.?
MB: It is important to always verify the selling price (by a real estate service provider, a bank, etc.).
Here are the financing rules in brief:
Normally 20% equity are needed and 80% are usually financed by the bank.
Equity can come from mulitple sources, of which at least half are made up of “hard” own funds, i.e savings, 3a credits, donation / inheritance pre-purchase. If the house is newly built, you can include as well own contributions (cost of your own time spent on working on the house). The other half of the 20% equity can be taken from pension funds under the restriction, that there is at least CHF 20,000 available on the fund.
80% is usually financed by the bank. One decision criteria for the bank to finance is the following: the total costs including mortgage rate (for calculation purpose assumption of a 5% rate), amortization and ancillary costs must not exceed max. 34% of your gross income.
Hence, the lower the mortgage rate, the higher the probability that the bank will finance you. Therefore at the moment it is still a good time, as the currently effective mortgage rates are still very attractive.
FF: A classical situation: a family with one child buys a two bedroom apartment, and then, just in few years, they get one or two more kids and the apartment is suddenly too small. What to do?
MB: Assuming the older flat has been financed with a longer term contract, you want to end that contract and set up a new financing contract for the new flat. Therefore it is important to clarify with the financing bank whether an early repayment fee is due for the sale of the existing apartment and whether it can be transferred to the new property.
As a rule, the existing apartment must be sold or there needs to be at least a written pre-contract, since most of the necessary equity is tied up in the old property. Subsequently, the new object can be reserved with the appropriately negotiated, received down payment.
But be careful: always check first the feasibility of the new financing with the bank and confirm it in writing before signing a new contract.
FF: Young families sometimes inherit property from their relatives, but often the entire estate equally is not suiting their needs. How to sell property at the fair market value that would be enough to reinvest and to buy a dream home?
MB: I strongly recommend a well-founded property analysis (Immobilien Boerse AG is offering one for free). With this free real estate analysis including market value estimation, you get a realistic market value. Also in the actual sale of the property it is worth to place a real estate professional. For example, Immobilien Börse AG can support you from optimal marketing to the purchase contract. At the same time, you should calculate the maximum possible financing directly from the bank or for example, via Immobilienbörse AG on the basis of the achievable sales proceeds, the other available own funds and the gross income.
FF: How can a young family save money with buying property Switzerland? For example, on mortgage interest tax deduction and so on?
MB: Mortgage rates are deductible from taxes; But always take into account the own rental value. In the case of older properties, where renovations are planned, they must be spread over several years.
Many banks offer “family mortgages” in which you get an interest rate reduction depending on the number of children.
FF: Thank you Mrs. Bader for the interview. We hope it will encourage young families to consider selling or buying property in Switzerland and getting a home of their own.