As we saw in the previous article, the situation has become very tense in terms of access to homeownership, given the limited supply and sustained demand in Europe. This article takes Switzerland as a practical example, but as the principles apply to all countries, a quick overview may be useful to every investor
Young families generally have too little money set aside for real estate investments. The incomes of this group have changed little, while real estate prices have risen five times as much as wages in ten years, as reported in the Swiss press (Blick, Sonntagszeitung and NZZ) in August 2021.
Institutional investors often appropriate free land for their own projects, limiting the supply available to private individuals and limiting the number of properties on the market. On the other hand, these large building projects increase the rental supply, which has not seen its prices explode like the real estate for sale. In addition, there are other advantages for tenants who see their status become more attractive:
- The maintenance and ancillary costs are not all borne by the tenants, as is the case for owners;
- Tenants enjoy greater flexibility for those who do not want a single housing product for their entire lives;
- Tenants have no debt with the bank while the Swiss have over a trillion francs in mortgage debt, which could be a problem if property prices, which are cyclical, stop rising.
Despite some of the advantages of renting, it is still worthwhile to become a homeowner in order to keep costs under control in retirement, if the homeowner can reduce its debt until pension. For young families, for whom access to ownership remains difficult, the options are :
- Financial support from parents in the form of an inheritance advance, or an interest-free loan. This latter option is usually necessary because it provides more transparency and limits the potential for inheritance disputes;
- Use of pension fund money. However, at least 10 percent of the purchase price must be in the form of other equity (not related to pension fund). In the case of married couples, it is recommended that only one of the two pension funds be used to finance the house, as a greater tax saving is possible for the other spouse with future payments into the other pension fund, provided that the pension fund still has gaps that allow for larger payments.
After having raised the necessary equity, you should follow the two following channels in order to obtain an advantageous mortgage loan in Switzerland:
1) It is important to obtain an offer from several competitors for negotiation with one’s main bank, as the reference interest rates published by the banks are often negotiable. Creditworthiness (high income and high equity) can further lower the interest rate that can be obtained. If your main bank cannot match the rate, don’t be afraid to take out your mortgage with a competitor, it’s a business game and your banker will understand your choice without affecting your relationship;
2) In parallel, you should make comparisons with professional intermediaries and platforms. Contributors to Guide Finances have been able to obtain excellent rates by this means. It is worth mentioning:
- Moneyland.ch, which offers calculation tools and current data on the Swiss mortgage market;
- Hypoplus (Comparis), which offers comparisons and access to institutional investors who do not want business-to-customer activity or initial contacts with debtors. Some asset managers such as pension funds or investment foundations with attractive offers do not want to deal with sales and customer acquisition aspects and can only be reached through intermediaries (such as Hypoplus and Moneypark);
- Moneypark, which generally provides the same access as Hypoplus (Comparis) with two differences: Their services are not free but the advice includes an assessment of your personal situation, which can be useful for people less well informed about the market and mortgage mechanisms.
In principle, Hypoplus and Moneypark have a fiduciary duty to offer you the best rate available to your situation. As such, the lenders compensate those intermediaries for performing the due diligence and risk analysis on their behalf, but should not receive any other compensation/kickback. Thus, their involvement should not affect negatively your interest rate proposal.
Over a decade, a difference of a few basis points on mortgage rates and applied to large sums of money is going to be huge. At best, research a few banks and insurance companies, and use the free comparison tools mentioned above. Not all intermediaries add value, but Moneypark (if you need additional advice) or Hypoplus have proven that they can offer rates that are sometimes not directly available to individual investors (e.g. by taking out a mortgage with investment foundations).
We strongly recommend that you invest enough time in this exercise: The amounts involved and the duration of this decision will certainly make the few hours spent analyzing/comparing the loan the most fruitful of your life. In fact, you will save thousands of francs based on a careful preparation of the loan, which will by far justify the few laborious and unentertaining hours spent on applying for it.
For more information on the evolution of the European and Swiss Real Estate market, please consider this article.