Flexible and mobile or settled?
Renting vs. buying: Five advantages of home ownership
- Housing costs: Thanks to historically low interest rates, buying is usually cheaper than renting.
- Security: Homeowners, unlike tenants, are safe from contract terminations.
- Retirement provision: The 2nd mortgage must be repaid (amortized). Thanks to falling interest rates on debt, housing costs fall in old age.
- Tax advantages: Homeowners are allowed to deduct debt interest, costs for value-preserving renovations and investments in energy measures from their taxable income.
- Increase in value: Demand is greater than supply. That's why well-maintained real estate in a good location is a solid investment and an important part of retirement provision.
Good to know: Renting has other advantages. Terminating a contract for an apartment is easier and faster than selling an apartment. In addition, tenants bear less responsibility, only have to take care of minor maintenance, pay less in maintenance costs and have more free capital at their disposal.
Renting vs. buying: Five disadvantages of home ownership
- Loans: Banks and insurance companies lend up to 80% for residential property (see "Lending, 1st mortgage and 2nd mortgage"). Homeowners must contribute at least 20% equity.
- Affordability: Housing costs may not exceed 35% of gross income (see "Affordability: How much residential property ownership can you afford?").
- Financial losses: Unemployment, a divorce, disability or death often lead to a lower income and can jeopardize affordability. Homeowners can protect their families against financial consequences with risk life insurance.
- Maintenance: The first major renovations or refurbishments will be due after 15 to 20 years at the latest. The longer they are put off, the more expensive they become.
- Market: On the one hand, mortgage rates can rise sharply and jeopardize affordability. On the other, the real estate market can collapse and the apartment could fall in value.
Homeowners must pay tax on the imputed rental value as fictitious income and on the value of the house or apartment as assets. However, you are allowed to deduct the mortgage debt, debt interest and maintenance costs.
Good to know: Renting has other disadvantages. Tenants generally pay more for a comparable apartment, but have less freedom when it comes to design. In addition, they have less say in matters and must adhere to the specifications of the property management.
Cost comparison: Rent vs. buy
|Borrowed capital (80%)|
1st mortgage (65%)
|2nd mortgage (15%)||166,739|
|Housing costs before taxes||Rent||Purchase|
|Rent including service charges||38,400|
|Interest 1st mortgage (1.75%)||12,644|
|Interest 2nd mortgage (2.25%)||3,752|
|Service charges (0.65% of the purchase price)||7,225|
|Repayment of 2nd mortgage||8,337|
|Maintenance (contribution to the renewal fund)||3,891|
|Required gross income||108,633|
|Imputed rental value, net||24,900|
|Deductible debt interest||-16,396|
|Housing costs after taxes||38,400||38,400|
This is only a sample calculation with fictitious figures. Calculate online how much a house or apartment should cost to make buying cheaper than renting (source: HEV).
The calculation works as long as interest rates are as low as they are now. At the beginning of 2008 they were above 4.5% , and in the early 1990s they were even above 10%. That's why banks calculate the affordability of home ownership cautiously using an imputed mortgage rate of 4.5% or 5%, which is higher than current interest rates.
Tipp: If you are moving from a smaller apartment to a larger one, you should check whether the contents insurance and the personal liability insurance need to be adjusted. Building insurance is mandatory for homeowners, and security deposit insurance may be useful for tenants.
The search can begin
Julia is convinced. Now she has to define search criteria with Stefan. It's clear where they want to live: Winterthur (macro location). They don't yet know where exactly. These search criteria are important to them for the environment (micro location):
- Distances to public transport
- Stores in the vicinity
- A day nursery in the vicinity
- A kindergarten in the vicinity
- A full-time school nearby
- A lively neighborhood
- Some greenery, nice views and sun
When it comes to the property, Julia and Stefan are open to ideas. New building or old building again, average fitting standard, plus/minus 120 square meters, at least four rooms, balcony or preferably a garden.