When homeowners suddenly find their homes too expensive

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Many people in Switzerland dream of owning their own home. However, with the increasing mortgage interest rates, this dream can turn into a nightmare. Several people on Blick reported that rising interest rates were making them feel uncomfortable or even had to consider selling their home. Nobody wants to stop. People in Switzerland generally do not like to talk about finance. Broken house dreams are also an exciting topic and are not recorded in any statistics. “Rising mortgage rates are already becoming a financial burden for some homeowners and will likely persuade some to sell,” says Donato Scognamiglio, 52, president of real estate consulting firm IAZI.

The increasing real estate supply also shows this. According to figures from Wüest Partner, 30 percent more apartments and detached houses were put up for sale in Switzerland in the first quarter of 2023 than a year ago. The increase is particularly strong in urban areas. Geneva saw an increase of over 50 percent, in Zurich the offer was doubled. And it can go higher. “Short-term sales intentions have increased compared to the previous year,” says Marco Tomasina, media spokesperson for online mortgage broker Moneypark.

30,000 francs for mortgage interest only

According to the Swiss National Bank, a 5-year fixed-rate mortgage currently costs an average of 3.04 percent and a 10-year rate of 3.14 percent. “From three percent on, the burden of owning a home becomes a challenge for some,” says Scognamiglio. But how can this be? After all, most banks calculate affordability at an interest rate of five percent. This should actually create air. “However, a divorce, a new job, or children can dramatically change their income and are the most common reasons someone has to sell their property,” explains Scognamiglio. Couples, in particular, often buy their own homes while both work almost full time. If there are children, the workload and related income decrease.

An exemplary calculation shows how serious an increase in interest can be in such cases: A family bought a 140 square meter house in Zurich for 1.5 million francs and mortgaged it for one million francs. In 2019, he was able to get a 5-year fixed-rate mortgage for less than one percent from the cheapest providers – with an interest cost of CHF 10,000 per year. If the family now has to renew the mortgage, they are already paying 30,000 francs a year at 3 percent interest.

Bigger apartments, two cars and more and more debt

If the income is no longer enough for interest, the savings should come—in fact. “When interest rates were low, many people didn’t put their savings aside, choosing to buy a second car or go on vacation more often,” says Scognamiglio. The cheap money of the last decade was also an incentive to buy a slightly bigger house. According to figures from the Federal Statistical Office, the average living area per capita in apartments has increased over the years and is now 54 square meters. This is 13 square meters more than the rental apartments.

And then there’s real estate prices: Since the turn of the millennium, they’ve grown 50 percent faster than income. And as such, it is one of the main drivers of the massive increase in private household debt. The Swiss mortgage market is currently valued at around CHF 1,200 billion. This becomes a problem, especially if house prices drop. However, most owners can still sell their homes without loss.

Source :Blick