Buying real estate Rent or buy. Which makes more sense?

Rising interest rates are making mortgages more expensive. In 2022, for the first time in 10 years, this has led to renting being cheaper than buying – as measured by regular costs. This statement is a snapshot which assumes that 80% of the property value is financed with a 10-year mortgage at current interest rates. Read our article to learn what other factors, both financial and sentimental, should be involved in a decision.

Property prices have continued to rise significantly in recent years. Whether this will continue to be the case in the future is in theory an open question, but the increased attractiveness of real estate and rising levels of immigration suggest that real estate prices in most regionsClick here to learn more about the regions where prices could fall will continue to rise rather than fall.

Unlike with a rental property, if you have purchased your home you can sell it at a profit when the market is strong.

Capital on deposit generates hardly any return at present. Even if interest rates soon rise to several tenths of a percent, the rate of inflation is forecast to be higher, meaning a loss of value in real terms. That is why real estate is a sensible form of investment.

And if you invest more than the minimum of 20% equity, the monthly mortgage interest payments will be lower. The difference between the regular costs when renting or buying mentioned in the introduction can then change.

The reference mortgage interest rate was introduced in 2008 to standardize how rents in Switzerland are calculated. It has fallen continuously since then – from 3,5 to the current rate of 1,25%. This has led to significantly lower rents for tenants who have exercised their right to a rent reduction. On 1 June 2023, the reference interest rate was raised for the first time since its introduction – to 1,5%. This would allow rents to be raised by 3% by the next possible termination date. In September 2023, the Swiss National Bank (SNB) decided against a further interest rate hike. The reference interest rate will nevertheless rise again in December. Further increases are then unlikely until the end of 2025. 40% of the cumulative increase since the last rent adjustment may also be passed on to tenants. How much landlords actually choose to pass on varies from property to property. Rising interest rates pushed up the regular costs of owning a home in 2022 and 2023 and are indirectly driving up rents as well.

The decline in the apartment vacancy rate in Switzerland is continuing. According to a UBS CIO study (DE) in June 2023 the vacancy rate for apartments was at 1,15% compared to 1,3% the previous year. This means that the rate has fallen to its lowest level since 2014. The lowest apartment vacancy rates were measured in the cantons of central Switzerland and in the cantons of Geneva, Zurich and Graubünden. Vacancy rates were highest in the cantons of Ticino, Solothurn and Jura, with the latter recording a slight rise in vacancies. Experience shows that significant rent increases can be expected if the vacancy rate slips below 1%. We estimate that quoted rents at the end of 2023 will be 2,5% higher than in the previous year. For 2024, we expect a further increase of around 3%.

Owning your own four walls gives a sense of security and independence: nobody can require you to leave and you may do what you want with your property, as long as it does not endanger or bother anyone else. Homeowners have many opportunities to help protect the environment by significantly reducing energy consumption and CO2 emissions. With good insulation, a new heating system and perhaps a photovoltaic system, you can both reduce your ancillary costs and help protect the climate.

On the other hand, as a renter you are flexible and can move home quickly if you have to for professional reasons or if you need less space because the children have moved out. A divorce or separation is also easier to manage financially. In most cases, the building administrator is responsible for the maintenance, repairs, bills and purchasing fuel for the heating.