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What makes more sense: renting or buying? This question can only be answered individually, on a case-by-case basis. But there are certain factors that can help you decide whether you should buy or rent.

Rent or buy: what makes sense when?

Rising key interest rates make mortgages more expensive. In 2022, for the first time in 10 years, renting was cheaper than buying as measured in terms of running costs. This statement is only a snapshot: It assumes the current interest rate situation and 80 percent financing of the purchase by means of a 10-year mortgage. Read the article to learn which other factors, both financial and emotional, are important when deciding whether to rent or buy.

What are the benefits and drawbacks of renting vs. buying?

When deciding whether to rent or buy an apartment or a house, there are benefits and drawbacks to consider. The following table gives you an overview of the most important benefits and drawbacks.

Renting property

Renting property

Benefits

Benefits

Drawbacks

Drawbacks

Renting property

 

Benefits

  • You enjoy a high degree of mobility when it comes to changing locations and employers.
  • A move is fast.
  • The search for a new tenant is generally simple and quick.
  • You will not carry an additional tax burden.
  • You have fewer responsibilities.
  • You have more discretionary capital.
  • You save time and money: the landlord assumes the costs and organization of renovations and maintenance.
  • Depending on the situation on the real estate market, you may face lower housing costs.

Drawbacks

  • You pay the monthly rent, but in the end, you do not own a property.
  • The landlord can give notice at any time.
  • You are restricted when it comes to the specifics of an extension.
  • Changes to the interior fittings must be made by the new tenant, otherwise you must restore them to their original state.
  • You will not own a home as part of your provision for retirement later on.
  • When interest rates are low, renting can be more expensive than buying.

Renting property

Buying property 

Benefits

Benefits

Drawbacks

Drawbacks

Renting property

 

Benefits

  • You do not pay rent.
  • There is no landlord who can give you notice.
  • If you pay off your home by the time you retire, you will have a solid pension plan.
  • A good location pays off: an increase in value beckons in the long term.
  • Interest and maintenance are tax deductible.
  • Owning a home is a solid investment.

Drawbacks

  • In contrast to renting, you are more restricted in your mobility.
  • You must pay for renovations and maintenance yourself.
  • The imputed rental value is considered income that you must pay tax on.
  • Selling your property can take a long time.

When does it make more sense to rent and when is it better to buy?

There is no general answer to this question, as life circumstances and needs are extremely individual. External factors also play a role.

Circumstances that speak in favor of buying residential property:

  • You can raise at least 20 percent of the purchase price from your own funds.
  • You want to settle down in a fixed place and spend a longer period there.
  • You want to leave your children a solid investment in the form of real estate or simply want a solid investment in general.
  • It is important to you to be able to decide on building standards and interior fittings yourself. You may even have a very specific idea of how your house should look in terms of both its energy efficiency and appearance.
  • You are ready to take on the expense of maintenance and any renovations.
  • The situation on the financial and/or real estate market is favorable, and you can benefit from low interest rates and/or low real estate prices.
  • Prices on the real estate market are stable and you can expect them to continue to rise, which will also increase the value of your property.

Circumstances that speak in favor of renting:

  • You will have a hard time raising the necessary equity for the purchase of real estate or this is currently not possible.
  • You do not want to commit yourself, perhaps because you feel this will restrict your mobility or you do not know what the future holds professionally.
  • You are reluctant to take on the extra effort. You do not want to maintain your property and take care of repairs and renovations yourself.
  • Your professional future is uncertain.

How do the monthly costs differ between renting and buying?

Monthly costs will vary, depending on whether you rent or buy. The calculation is based on the net rent, i.e., excluding ancillary costs, and then compared with the monthly costs at the time of purchase. When it comes to the costs of buying a property, the main factor is the monthly financing costs of the mortgage. In addition, an average amount is added for maintenance, tax aspects (imputed rental value, debt interest deduction, maintenance deduction) and the lost return on equity.

Residential property increases in value

Property prices have continued to rise significantly in recent years. Whether this will continue to be the case in the future is theoretically open, but the increased attractiveness of housing and rising immigration indicate that real estate prices in most regions 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. Before you sell a property, you should always form an idea of the current real estate market and how it will develop in the near future. The important question here is how the market is trending in your region. If the timing of the sale is flexible, you can choose the best time.

First Home

0.30% interest rate reduction on your first home with UBS, or to replace an existing mortgage with another bank.

Real estate as a form of investment

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 nowadays.

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

Emotional factors play an important role when deciding whether to rent or to buy

Owning your own home gives you a sense of security and independence: you cannot be forced to leave and 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 takes care of maintenance, repairs, bills and purchasing fuel for the heating.

What financing options are there for buying a property?

For you to fulfill your dream of owning your own home, you have several options for financing. Basically, financing always consists of your own funds and one or more mortgages, which you combine according to your own financial possibilities and wishes. If you are building your own home from scratch, a construction loan, combined with your own funds, is also an option.

Mortgage

  • Fixed-rate
  • SARON mortgage

Equity

  • Checking and savings account
  • Advance withdrawals from the pension fund / pledging of pension fund capital
  • Withdraw or pledge capital from pillar 3a
  • Using an anticipatory succession or gift

Mortgage comparison

Our mortgage comparison will give you an overview of your options and tell you which mortgage is right for you.

How does buying a property affect my tax bill?

Your tax bill will change when buying and owning a property. Certain tax burdens are added, while other items can be deducted from your taxes, as the following overview shows.

Taxes and fees when purchasing the property:

  • Depending on the canton, there is a real estate transfer tax as well as land registry and notary fees.

Taxes incurred by ownership:

  • Income tax: the imputed rental value must be taxed as income.
  • Capital tax.

You can claim the following tax deductions:

  • You can deduct mortgage interest from your taxes. Good to know: amortization of the mortgage reduces the mortgage debt, which reduces the tax-deductible interest on the debt. This results in an increase in income tax.
  • Indirect amortization in pillar 3a.
  • Value-preserving renovation and maintenance costs. For example, deposits in a renewal fund, gardening, painting. All ancillary property costs incurred, such as building insurance. Good to know: you can deduct these expenses as a lump sum or according to actual costs. In most cantons, the lump sum is 10 percent of the imputed rental value for properties that are not older than 10 years. For older properties, the figure is 20 percent.
  • Value-added investments if they promote energy efficiency or the use of renewable energy. Photovoltaic systems, heat pumps or insulation are eligible for deduction in the vast majority of cantons.

What are the tax benefits and drawbacks of renting?

In principle, renting is much easier when it comes to tax issues than buying or owning residential property. This is of course an advantage in terms of the time and effort required for the tax declaration. One important advantage is that tenants do not have to pay tax on the imputed rental value – something that directly affects property owners.

At the same time, tenants have fewer options when it comes to their tax planning. For comparison: Property owners can deduct the payment of mortgage interest from their taxes – for as long as they hold the mortgage. Conversely, tenants cannot claim the rent, which is usually a similar amount to mortgage interest, for tax purposes. This means you can’t save on taxes like homeowners. Your only option is to invest in pillar 3. Such investments can be deducted from taxable income but are limited annually.

Conclusion

As you can see, the question of whether it is cheaper to rent an apartment or buy a home in Switzerland cannot be answered in general terms. It depends on the region, the property, your financial resources, the time of purchase as well as the timescale, taxes and several other things. In addition, hardly anyone will make the decision on a purely financial basis. Find the right answer and get advice if necessary.

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