Buying a house in old age: what to consider

What matters most when buying a house in old age is above all your personal and financial situation. Have you set enough aside financially to buy a house? Is financing possible? How would you like to spend your retirement? Answers to these and many other questions provide an indication of whether buying a house in old age is even an option for you. The idea of growing old in your own home and living independently for as long as possible according to your own wishes is one of the most important aspects. Whether and when the right time has come to buy your own home depends on your life situation and your individual housing and living needs.

After a long period of employment, you may have accumulated the necessary equity to buy a house more easily than when you were younger. Nevertheless, buying a house in old age does not always make sense from a financial point of view.
A high level of liquidity is an important basic requirement, as many credit institutions charge older buyers a higher co-payment than the minimum 20 percent of the purchase price. The reason for this is, if you are over 50 years of age, you have less time to repay a mortgage than, for example, a 30-year-old. The repayment installments are also higher in old age. As a general rule, a second mortgage must be amortized by retirement so that the remaining amount is a maximum of 65 percent of the loan-to-value ratio of the property.

If you’re planning to buy a house in later years, you can also use part of your saved assets from the pension fund to finance it. However, it is important to note that you can only withdraw your entire capital before the age of 50. After this, until retirement, only partial withdrawal is possible. If you plan to use your pension capital for this purpose, a pension gap can quickly arise later on, as you have less assets or a much lower pension from the pension fund at your disposal. Plan carefully to see whether your financial reserves allow for this reduction in retirement capital.

Up to and including the age of 50, you’re allowed to withdraw your entire credit balance to purchase residential property. After that, you can either invest the amount of your pension fund assets at the age of 50, or half of your current retirement capital – whichever of the two values is higher – in buying your own home. The amount of any lump-sum withdrawal from the pension fund is also important from a tax point of view. Capital payout tax is a separate tax and not insignificant. It’s calculated independently of assets and income, and is subject to progression in most cantons. If you make a withdrawal to purchase residential property, you may be able to save additional tax on a later planned lump-sum withdrawal when you retire by staggering the withdrawal. In principle, it’s possible to withdraw pension assets to purchase residential property up to three years before the entitlement to retirement benefits arises, unless the pension fund has defined a more favorable provision in the regulations.

The same tax is also payable on any lump-sum withdrawal from your private pension plan, pillar 3. Money from the voluntary, restricted pension scheme can be paid out as early withdrawals for the purchase of a property up to five years before the normal OASI retirement age. After that, the pillar 3a balance is available to you at any time and regardless of the purpose. The only limitation is that the assets in a 3a account must be paid out in full and cannot be withdrawn in parts.

It’s important to note that capital payout tax is due when the payout is made. This depends on where you live and the amount of capital. As a rule of thumb, you can expect to pay an average of ten percent of the capital. This tax cannot be financed with the capital paid out. You must already have the funds for the tax available elsewhere.

Although many people decide to buy a house at a younger age, there are others who only fulfill this dream at an advanced age. The same rule applies in this case: proper planning makes it much easier to buy a house later in life. It also ensures you can still finance the property despite the monetary losses that often occur with retirement. Accordingly, we advise you to get an initial overview of the options for real estate financing about 15 years before retirement. A long-term financing model should be worked out five years before retirement.

Ensuring affordability

Before you decide to buy your own home, you should be sure you can still finance the property after retirement. As a rule, you will have a significantly lower income available at retirement age. In order for residential property to remain affordable, the maximum possible mortgage must therefore also be lower.

This is referred to as the affordability of the mortgage. Affordability is the ratio of the ongoing financing and ancillary costs of a property to the borrower’s income. A mortgage is considered affordable if the regular fixed costs do not account for more than a third of your disposable income. Fixed costs include interest, the agreed amortization of the loan and the maintenance costs of the property such as insurance premiums, heating and electricity costs. A lower mortgage and a slightly lower purchase price significantly increase your room for maneuver.

Creditworthiness in old age

In retirement, the same credit check is carried out for a mortgage as before. Affordability is influenced by whether the mortgage can be financed with your available pensions and/or existing assets. If someone has withdrawn capital from the pension fund, this is treated as capital consumption and not regular income.

A key factor in financing real estate is the mortgage interest rate. How it develops determines the costs, opportunities and risks of your home financing. Even small interest rate fluctuations have a significant impact on the total annual burden. If you have taken out a mortgage on favorable terms, your financing may become significantly more expensive if the term is extended. You should therefore factor rising interest rates into your financial planning. Since the mortgage interest rate can change at any time, it is advisable to keep an eye on the current conditions and interest rates.

When looking for your own home, keep in mind that you will ideally live there until old age. However, not every property is suitable after retirement – whether due to the location or the structural conditions.

Good infrastructure is important. Is the property conveniently located and connected to public transport? Are there doctors, pharmacies and shopping facilities nearby, or within walking distance? A large garden is nice, but needs maintenance. Do you have money in the budget for a gardener if maintenance becomes difficult later?

And don’t forget your social life: it’s important to have friends, acquaintances and family nearby. Helpful neighbors, who not only make everyday life more pleasant but can also help out every now and then, are also an advantage. You also have more time in retirement. Varied leisure and cultural activities should therefore also be taken into account.

The property itself should be accessible, and at ground level if possible. Stairs and multiple levels impact mobility and are a risk for seniors. Plan for potential costs for age-appropriate renovations. Perhaps the installation of a stairlift or the construction of a wheelchair ramp will be necessary later. Fixtures or fittings may have to be moved or the bathroom renovated in an age-appropriate way.

The future may not extend quite as far in old age, but that makes it all the more important to consider it. Anyone who buys a property as a pensioner should think about what to do with it after their own death, or if they can no longer live in it themselves for health reasons. Discuss such matters with your family early on to avoid an argument later.

And remember that with an active mortgage, the affordability of the property should be guaranteed. If you do not draw up a will or an inheritance contract, the entire estate will be divided among the heirs in accordance with the rules of inheritance law. In this case, the residential property is transferred to the community of heirs. It may be determined that the surviving spouse or registered partner can claim the residential property and offset it against their share of the inheritance.

Buying your own home does not have to remain wishful thinking, even at an advanced age and with retirement in sight. The two key challenges are the shorter payback period until retirement and higher repayment rates. Additional collateral, such as pillar 3a or life insurance, can be counted as equity or used for special repayments – and strengthen your creditworthiness.