Is it still worth owning a home?: Much higher interest costs burden the household budget

Interest cost of 1333 francs per month

Now let’s move on to the cost calculation: While we can still find Saron mortgages at 0.65 percent towards the end of 2021, an interest rate of 2.65 percent should now be expected. This means that annual interest costs for a mortgage exceeding 800,000 francs are 16,000 francs higher today. This is CHF 1,333 per month.

It is also necessary to take into account that two years ago there was no interest on the savings account, but today it is usually above 0.5 percent. If you remain a tenant, you can leave at least 200,000 francs of equity in a savings account where you earn 0.5 percent interest, i.e. 1,000 francs per year. This lost interest should at least be included in the calculation.

It could even be argued that this money could be deposited in a wide variety of ways in the long run on the stock markets. There, you can expect a long-term average return of 6 percent. But we don’t want to go that far and calculate with 1.35% interest here. Zürcher Kantonalbank currently offers this for two-year medium-term bonds. This would be a loss of interest of 2700 francs per year, i.e. 225 francs per month.

2,825 CHF per month for a 4.5 bedroom apartment

To calculate the monthly cost of a 1 million CHF apartment, you need to factor in the cost of maintenance. Because if you have an apartment, the dishwasher or something breaks down, you can no longer call the landlord. You have to organize and pay for everything yourself. By default, one percent of the property’s annual value is calculated for this. If the flat costs a million, that’s 10,000 francs a year, 833 francs a month.

In total, the monthly cost of a flat of 1 million francs is equal to 1767 francs plus 225 francs lost interest and 833 francs maintenance costs. This totals 2,825 francs. This does not take into account that the imputed rental value of the flat still needs to be taxed as income.

If you look for a similar rental flat in places where you can buy a 4.5-room flat for 1 million francs, you’ll find they’re all much cheaper. You can find it in Uster for 2100 francs.

4238 francs for a more luxurious condominium

It is even more obvious if you search for such a 4.5-room apartment in the slightly higher price range, not the lower price range. Then you have to take into account a purchase price of 1.5 million francs for such an apartment. 80% of this is financed by mortgage. The monthly interest expenses for such an apartment have increased by 2,000 francs in the last two years.

In general, the monthly interest cost for such an apartment is now 2,650 francs. In addition, there is an estimated maintenance cost of 1250 francs and a loss of interest of 338 francs. That’s a total of 4,238 francs per month.

Anyone who looks around to see what apartments are available at this purchase price and compares them to rentals available for up to CHF 4,238 per month can quickly conclude that the rental is financially worthwhile.

If you search in Uster, you will find only four 4.5 bedroom rental apartments there. The monthly rental price is between 2100 and 3250 francs. The most expensive has 153 square meters of living space and offers the Minergie standard.

Renting beats buying

The current situation is such that now you should think twice whether you really want to buy a property. For this to pay for itself financially, it is necessary to assume that the value of the purchased property will increase sharply over the next few years. It’s possible, but right now the signs are the opposite, meaning that prices are more likely to drop. Precisely because it is cheaper to rent than to buy right now.

It should also be noted that those who once bought their homes at low mortgage rates now have to bear much higher interest costs. This is less true for those who finance it with long-term mortgages, but it applies to anyone with a Saronic mortgage. As interest rates rise, their costs automatically increase.

Saron may rise again

How high this will be can be calculated: anyone who buys a Saronic mortgage of 800,000 francs at the end of 2021 will likely have to pay 1,333 francs more for it today than they did then. This money is now missing from the household budget for other expenses. With a mortgage of 1.2 million francs, this is already 2,000 francs.

And Saron is likely to rise again by 0.25 percent in the fall. With a CHF 800,000 mortgage, this means an additional cost of CHF 167 per month. It is 271 francs with a mortgage of 1.3 million francs.

High rate of Saronic mortgages in recent years

This will particularly affect many of those who have purchased their properties in the last two to three years. Because they most likely financed their own house with a Saronic mortgage. A third of new mortgages in 2022 were settled as Saron with specialist mortgage broker Moneypark. And according to Raiffeisen, more than every second of new mortgages were settled as Saron in June and July 2022.

“Handelzeitung” warned of a rise in interest rates in May 2022 and advised anyone with a Saronic mortgage to switch to ten-year mortgages, which were still 2 percent at the time.

Even a real estate crash cannot be ruled out if interest rates continue to rise and the economy collapses. Statistically, this occurs in Switzerland every twenty years. The last one was over 30 years ago.