Struggling to find the right property in the right location?
Thinking about buying a house off-plan and getting the keys in one or two years? (Off-Plan-Immobilien / Immobilier sur plan)
Think again.
Two years ago, it was possible to get a 15-year fixed mortgage – with no early repayment penalties – for around 0.75%. Now, the same deal will be in the region of 2.6%. Let’s see how that looks in real terms:
0.75%
CHF 1,500,000 Property Value
CHF 300,000 Deposit
CHF 975,000 1st Mortgage
CHF 225,000 2nd Mortgage – 15 Year Amortisation
CHF 24,000 Per year based on 0.75% + Amortisation
2.6%
CHF 1,500,000 Property Value
CHF 300,000 Deposit
CHF 975,000 1st Mortgage
CHF 225,000 2nd Mortgage – 15 Year Amortisation
CHF 46,200 Per year based on 2.6% + Amortisation
*Calculations above based on indicative rates as of May 2022, assuming amortisation of CHF 15,000/year + interest on 1st and 2nd mortgages, not including ancillary costs, Baurecht, appreciation or taxes
While inflation in Switzerland is nowhere near as high as the US, UK and EU, it has increased c. 250% in the last 18 months. This trend seems unlikely to reverse any time soon.
It’s unlikely that the SNB (Swiss National Bank) will follow the Federal Reserve and Bank of England in hiking interest rates soon, since they need to protect the Swiss economy from the effects of a strong Franc. However, it is likely that higher-than-average inflation is here to stay for the foreseeable future, which brings with it the higher probability of increasing mortgage costs.
The Big Danger
If you choose to put a deposit, or reserve amount, down on a property today which will not be completed for one or two years (or more), you run the very real risk of securing a mortgage later at a much higher rate than today. Since the values of Swiss properties are so high, any small increases in mortgage rates equates to large increases in borrower costs.
4%
CHF 1,500,000 Property Value
CHF 300,000 Deposit
CHF 975,000 1st Mortgage
CHF 225,000 2nd Mortgage – 15 Year Amortisation
CHF 63,000 Per year based on 4% + Amortisation
Options
It is possible to forward-fix a mortgage today, and secure a mortgage rate to start in the future. However, this is not for free and the cost of doing so can outweigh the benefits – particularly if the start date is more than one year into the future.
Another option is to take the risk and assume you’ll use a variable-rate (SARON/LIBOR) mortgage when the property is completed. Although this will be a lower rate than a fixed mortgage, it is still possible that base interest rates increase to the point that even SARON mortgages become as expensive/higher than fixed rates now, and there’s the added risk that this floating rate increases beyond two years into the medium to long term (again increasing borrower costs).
In summary, if you are fortunate enough to find the right property in the right location already completed, don’t delay in purchasing – assuming the calculations make sense to buy versus renting.
Not sure whether it makes sense to buy versus renting? Speak to an independent expert today to help you model the numbers, and assess the pros and cons of buying versus renting.
Disclosure:
This article has not been written to give advice, and purely expresses our own opinions. We are not receiving any compensation for it, and we are not responsible or liable in our capacity as an independent financial adviser for any action taken by readers based on these opinions. For personalised advice based on these issues, please seek advice from a regulated, independent expert.