Checklist for homebuyers 12 facts for anyone wanting to buy a home

We answer the main and most frequent questions from clients who want to buy their own home.

by UBS Insights 07 Mar 2022
Image: Getty

1. Why become a homeowner?

If you’re the owner, you call the shots: whether brightly colored walls, flowerbeds in the garden or a new kitchen – if you own a house or an apartment, you can make it your own. There’s also no risk of suddenly being forced to move out, for example, because your landlord wants to move back in. For anyone looking to make long-term plans, that’s a big plus. Due to current low interest rates, buying is often also cheaper than renting, and a property can be an attractive investment.

2. Which is cheaper: buying or renting?

Owning your home is usually still cheaper than renting. Unlike renters, buyers benefit more from today’s current low interest rates, and their incidental costs are on average slightly lower than the rental costs of comparable properties. However, because rents are currently stable while property prices continue to rise, when total costs are considered, the balance tips in favor of renting. This is already the case in exclusive, expensive locations, where renting is more attractive than buying.

Rent or Buy calculator

Is buying a home worth it?

Use our Rent or Buy Calculator to find out whether it’s cheaper for you to rent or to buy a home

3. How much can I afford?

In most cases, buying a home starts with a specific property and the question: can I afford it? But if you take this approach to buying a home, you run the risk of failing to meet financing requirements. Even if mortgage interest and running costs are lower than the rent you are currently paying, this does not mean you automatically meet affordability guidelines and deposit requirements. So, a better question is: what can I afford? The UBS maximum purchase price calculator is a good guide. The basic formula is that if the property in question costs no more than five times your annual gross income and if you have a deposit of 20%, then you should be able to afford it.

What can I afford?

Use our purchase price calculator to find out the maximum you can spend on your new home

4. Buy or build?

Because land for construction in central locations is so scarce and costly, only a minority can afford to choose between buying an existing home or building one from scratch. If you own some land for construction, you can build your dream home. But if you buy an existing property, you can still have some say in the design, for example, by buying “off-plan” or undertaking a conversion to adapt the home to your specific needs.

5. Condo or house?

The choice between an apartment and house usually comes down to personal preference and budget. A homeowner enjoys the most freedom when it comes to the design and layout. Buyers who prefer an urban to a rural environment are more likely to choose a condominium. High prices make it difficult to afford a family home in popular, central locations.

6. How easy is it to resell a property?

Selling residential property is generally easy in Switzerland because the Swiss real estate market works well. Rising prices in recent years are good news for sellers. As long as interest rates remain low, the risk of a sudden drop in prices is small. But if you do have to sell a property quickly, you may need to accept a lower price. This risk applies in particular to properties in more peripheral locations, as well as to very expensive or unusual properties. The Swiss Real Estate Bubble Index provides information on whether and where real estate might be overvalued with the associated risk of an imminent drop in prices.

7. Where can I find a mortgage?

When it comes to financing a property, buyers are spoiled for choice, with mortgages now available from insurance companies and pension funds, as well as banks. Many also offer mortgages online. Increased choice means more competition and lower interest rates, but also more work for the borrower. It’s worth reviewing the offers closely and obtaining expert advice. In addition to the interest rate, the terms of contract are also crucial, e.g., the rules on contract termination.

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8. Does it make sense to split a mortgage into tranches?

Splitting a mortgage into tranches reduces the interest rate risk. When the mortgage comes to an end, overall interest rates can be higher than the rate you were paying, so splitting the mortgage into multiple tranches with different terms prevents you having to renew the whole mortgage at a higher rate.

9. Fixed-rate mortgage or SARON?

A fixed-rate mortgage differs from a SARON mortgage mainly with regard to predictability. With a fixed-rate mortgage, the interest rate remains the same for the full term, from two to ten years. This gives you peace of mind and is an advantage when interest rates rise. UBS SARON mortgages have a variable interest rate and are for an indefinite period. The interest rate comprises the SARON Compound rate plus an agreed fixed margin. SARON mortgages make sense when falling or stable interest rates are expected and borrowers have a certain amount of financial leeway.

What's next for interest rates?

Our interest rate forecast informs you about current interest rates and future developments.

10. Mortgage: short or long term?

Fixed-rate mortgages are usually offered with terms of between two and ten years. The longer the term, the higher the interest rate. The main reason for this is the safety margin, i.e, the additional price paid by the borrower for a guaranteed interest rate. The drawback of a longer term is of course less flexibility. If a mortgaged home is sold well before the end of the mortgage term, the early redemption of the loan can be expensive for the borrower.

11. What happens after the purchase?

Things are easy for renters: there’s the rent and the bills and that’s it. Costs are more complicated for homeowners. In addition to the bills for water, electricity and heating, there are also the mortgage interest and repayment costs, insurance premiums, potentially higher taxes and reserves for maintenance and renovation. Homeowners often underestimate the latter items. This can lead to problems when major renovation work is suddenly required.

Would you like a better overview of costs incurred?

UBS Immo-Smart lets you keep an eye on your real estate costs and monthly expenses

12. How will my tax situation change?

Buying a house or apartment will directly impact your tax liability. On the one hand, your taxable income will increase by the imputed rental value. However, the costs of maintenance and renovation, mortgage interest and indirect amortizations are all tax-deductible. Due to current low interest rates, overall your taxable income will in many cases be higher, leading to a higher tax bill. Furthermore, future amortizations will lead to a reduction in mortgage interest debt. This will reduce the amount of tax-deductible debt interest, which in turn will also result in higher income taxes.
 

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