Zurich - Property Market

Out of My Price Range (If it Were For Sale)

For Zurich, my current rent is fairly reasonable and at one point I decided that if I kept my flat on throughout retirement, it would probably cost me less than buying somewhere. Moreover, by renting I’d have more capital available rather than having it tied up and not ready to hand if I wanted to move.

However, recently, quite a few people have been asking me why I haven’t bought, and since I’m a bit of a property addict, I came to question this earlier decision. Property in Zurich is extremely expensive. To have a reasonable choice of apartments, you’d need about a million CHF (if not more); however there is the occasional property still just below 500k CHF or between 500-600k CHF.

The mortgage situation in Switzerland is very different from the UK. In Switzerland, you generally have to put down 20% deposit (although you can pledge your private [not statutory] pension fund for 10%).

Once you have the deposit, most people have two mortgages (yes, two mortgages!) to cover the remaining 80%. One covers approximately 60% of the cost of the property and has an indefinite repayment period (around 1% per year). It’s not really expected that this mortgage ever gets fully paid off. The other mortgage covers the remaining 20% of the property price and must be paid back in 15 years (or before retirement age, I believe).

For those who are used to a system like in the UK, where the idea is that you buy a property and then you don’t have any costs in your retirement, the idea of having a mortgage still to pay until you die is a bit daunting. What’s the point in owning, if you never actually own it?

To add insult to injury, the Swiss system then decrees that once you’ve bought your property, you have to pay income tax on its rental value (even if you’re not actually getting any such income). I’ve heard people say that this is offset by the costs of repairs etc, but it still seems rather weird to me. In addition, your property is regarded as part of your wealth (minus your mortgage / debt), and you are taxed on your wealth.

All this put me off buying property in Switzerland.

However, mortgages are cheap and will often work out as less expensive than rent. So, I would be saving costs. And the old argument still applies that you can sell the property at some stage and thus “save” your rental costs during the period where you lived in the property, whereas rent is lost forever. And although you don’t pay it all off, this also means that actually you still have access to the capital rather than having it tied up in the property. This made me reconsider recently my decision not to buy.

Affordability for a mortgage in Switzerland is judged assuming a 5% interest rate for the mortgage(s), your repayments, plus includes other costs you will have such as maintenance and insurance; you won’t be able to buy if affordability is more than 30% of your income. Interest only mortgages don’t exist.

I saw a property near where I live for less than 500k and that got me thinking. However, it sold really quickly. This is what I’ve observed in Zurich, at least. If a property seems to be very good value, it will usually be off the market within a week or two or sometimes even faster than that. I once saw one disappear in two days.

But all this is still a lot of money and also put me off buying property. For the amount I’d need for deposit, I could buy a property to rent out in the UK and have extra income instead.

And then I realized that if I was prepared to move out to Schaffhausen, which is a town I really like about 40 mins away from Zurich, property prices are about half the price vs Zurich. So maybe I should move? However, tax is higher and the properties do not move so quickly as in Zurich. Having said that, I did view one that I got quite excited about, but this one was sold within about two weeks. At least this means that I have a good eye for which properties are good buys!

I’m a contract worker and I’m still unsure whether I could even get a mortgage. At the moment, I’d also struggle to get the deposit together, even for somewhere in Schaffhausen. This is mostly because I’ve recently started putting any savings towards paying off my UK mortgage (and I’m not sure if my UK mortgages would be a further hurdle to getting a mortgage in Switzerland, although I have equity in the property). I started to ask about whether I could get a mortgage when I don’t have a permanent position, but when the bank started to probe, I realized that my situation is quite complicated and I didn’t have the energy to go through it. I probably need to wait until I have more savings and maybe I need to pay off my UK property first.

It’s all a complicated thought process and I think in the end I need a bit of realism as to my actual current financial situation which doesn’t really match what I need to have. It’s back to “Next year, Rodney…”