Buying in Your Thirties

We know from our experience in advising clients that, despite today's property prices, there are good opportunities available to climb the property ladder for those who start planning early. In fact, a younger age could be a distinct advantage with the right strategy and can help overcome the typical challenges that lie on the path to home ownership.

Why young buyers have a real advantage

When calculating affordability, the bank not only looks at your current income but also at the time remaining until your retirement. Someone buying at 30 has 35 plus years in which to service their mortgage. Someone starting at 50 has considerably less flexibility.

Young buyers also benefit from long-term interest-rate agreements when interest rates are low. A fixed-rate mortgage for 10 or 15 years can be used over a longer period of lifetime without having to renegotiate again in the short term.

And last but not least: anyone who owns a property from an early age can benefit from the appreciation in value over many years, rather than losing that appreciation to someone else by renting.

Equity: The biggest hurdle

At least 20% of the purchase price must be provided as equity. Of this, at least 10% must come from "hard" equity, i.e. the buyer's own funds rather than money from a pension fund.

For an apartment in the Canton of Zurich costing CHF 750,000, this means CHF 150,000 in equity, of which CHF 75,000 must come from savings or an early withdrawal from the 'third pillar'. 

That does sound like a lot for a couple in their early thirties but three routes can help make this target realistic:

Start paying into Pillar 3a early

Anyone who starts at 25 and pays the maximum amount into Pillar 3a every year will have built up a substantial nest egg after ten years. Pillar 3a benefits from tax advantages and can be specifically used towards buying a home.

Make an early withdrawal from the pension fund

An early withdrawal from the second pillar is possible, but reduces the pension you will receive later in life. We recommend obtaining advice from a pension planning specialist before a withdrawal.

Support from the family

Gifts or interest-free loans from parents are common in Switzerland. It is important to have a written agreement so that everything is properly documented both for the affordability assessment and in the event of inheritance.

Affordability: More than just the mortgage interest

Banks calculate affordability using a notional interest rate of around 5%, even when actual interest rates are currently lower. In addition, they include ancillary costs and amortisation.

As a rule of thumb, annual housing costs should not exceed one third of income.

Practical example: The Keller family from Winterthur, both aged 31, have a combined annual income of CHF 145,000. They have CHF 180,000 in equity for an apartment costing CHF 820,000.

The bank calculates their notional annual housing costs at around CHF 44,000 — just below one third of their income. The affordability requirement is therefore met, but only with a narrow margin. Future additions to the family or a reduction in working hours could make affordability an issue in the future and should be taken into account.

Which mortgage models make sense for young buyers?

A combination of a fixed-rate mortgage and a SARON mortgage often offers young families the best balance between security and flexibility.

A purely SARON-based mortgage is more suitable for buyers with a financial buffer, because interest rates can fluctuate. A long-term fixed-rate mortgage provides security, but ties you in to the rate for many years.

Which model is right depends heavily on your personal willingness to take risks and your employment situation. This is where a discussion with an independent mortgage adviser can be worthwhile.

Common mistakes made by young buyers

Calculating too tightly: It is not wise to use every last Swiss franc of your equity. We recommend retaining a buffer equivalent to several months' salary for unexpected repairs or changes in circumstance.

Using all of your retirement savings for the purchase (and leaving it tied up in the property): This can significantly reduce your retirement provision later in life. It’s important to retain some financial liquidity later in life. Bricks and plaster are a good investment and offer security but cannot pay the daily bills! 

Failing to factor in family planning: Income can temporarily fall because of childcare responsibilities or part-time work. Affordability must still work under these circumstances.

Choosing the wrong type of mortgage: A purely SARON mortgage without a financial buffer can quickly become a burden if interest rates rise.

Underestimating additional costs: Notary fees, land registry fees, property transfer tax and estate-agent commissions can quickly add up to several percent of the purchase price. These costs must be available in addition to the required equity.

To avoid these common - and costly - mistakes, we have provided a starting point for your planning strategy with a checklist for your first property purchase:

• At least 20% of the purchase price must be available as equity, with at least half coming from your own funds 
• Calculate the affordability equation with a notional interest rate of around 5% 
• Factor in additional costs for the notary, land registry and property transfer tax separately 
• Don't forget about the amortisation costs
• Take into account any planned changes to your financial circumstances, such as family planning and possible changes in income
• Retain a small nest egg for any unexpected costs
• Compare different mortgage models and costs and get a whole-of-market overview
• Obtain professional advice onthe impact on your retirement and pension planning if you access your pension funds.
• Before making the capital commitment, ensure a professional has checked over the location, condition of the property and paperwork prior to purchase. 

Frequently asked questions

• Is buying worthwhile if I am not yet settled professionally?

That depends on your individual circumstances. Anyone expecting to move to another region because of a job change in the next few years should take this into account, as selling after a short period of ownership can have tax disadvantages.

• How much pension-fund money can I withdraw early?

Up to the age of 50, it is generally possible to withdraw the entire amount held in your pension fund. The precise rules can vary depending on the pension fund, so individual clarification is advisable.

• What happens if interest rates rise after I buy?

With a fixed-rate mortgage, the interest rate remains unchanged for the agreed term. With variable-rate models, affordability should still be maintained even if interest rates rise, which banks will generally check anyway.

• Can I buy with or without equity from my family?

Both are possible and should take your family situation into account. If you have enough funds then all the better. However, family members are often willing and happy to support you to make things a bit easier if able to.

• Do I need an estate agent to buy a property?

Particularly for first-time buyers, professional assistance can prevent many costly mistakes, unnecessary stress and ensure that your capital investment is actually sound.

Conclusion

Owning your own home at 30 is achievable in Switzerland, but it requires careful planning regarding equity, affordability and the appropriate mortgage model.

Those who start early benefit from a long amortisation period and stable fixed-rate periods.

Do you have questions about your first property purchase?

We would be happy to personally accompany you from financing planning through to moving into your new home. Contact us for a non-binding initial consultation.

Kind regards,

Olivia and Vivien Bucher, Managing Partners