Buying property: European banks have once again warned of further interest rate hikes and we have received many calls from clients asking if they should switch to a fixed-rate mortgage. Their concerns increased when Swiss banks recently decided to increase their variable lending rate from 3.0 per cent to 3.25 per cent, the first increase for many since 1995.
| Auteur | Donnellon, Brien |
| Fonction | MONEY |
Renters in boom markets complain that they are wasting money but often do not take the time to calculate all the costs and risks of ownership. Ignoring capital gains and losses, the annual cost of renting is often cheaper than homeownership with a mortgage. Renting also gives a feeling of greater financial freedom and allows the client to move quickly if an out of town job opportunity arises or a noisy neighbour moves in.
Having said that, however, there are obviously benefits to ownership beyond the financial, like peace of mind and a feeling of stability. Owners cannot have their home taken away by a landlord who has decided to move back in. Owners can also change the colour of their living room walls or redesign their garden without asking permission. After becoming a homeowner few consider the concept of renting ever again.
Buying tips: calculate your budget
While the price of the new property is immensely important, the other costs must be taken into consideration or you will soon be in trouble. If you take on a mortgage, then you must add interest into the equation and if you choose a variable mortgage, then budget a reserve to allow for a possible increase in interest charges, which can amount to a significant sum.
On top of that, you must cover a change-of-ownership tax as well as lees for the notary, land registry, bank, surveys and insurances. The costs of moving, decorating and additional furniture should not be underestimated. We strongly recommend you calculate the cantonal and municipal taxes before moving to another area. We find the question of tax is one of the most important issues for expats.
We also wrote about mortgages in last month's issue. But to summarise: The main types of mortgages are variable rate, fixed rate and libor. It is possible to negotiate with lenders but make sure to leave yourself enough time to shop around Discounts of up to 0.6 per cent off the published rate are possible if you negotiate well.
Downpayment
Banks prefer to lend a maximum of 80 per cent of the purchase price, which can leave many buyers short of cash. The Swiss government promotes primary property ownership by permitting the use of capital saved in a company pension (pillar 2). Additionally, pillar 2 and pillar 3A blocked vested accounts or policies can be used to repay your mortgage, purchase a house, apartment or property, or fund home construction.
Importantly both the employees and employers pension fund contributions can be used...
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