Costs, risks, financing: What to consider when purchasing residential property

For many people, buying their own home is the biggest financial purchase of all. That's what you have to bear in mind.



Owning a home is a dream for many Swiss people - and studies show that around three quarters of today's tenants would like to buy a home. However, those who want to buy must consider and clarify many things so that they can make the right decision.

First of all, they should study the local property market in detail well in advance of the purchase in order to be able to act immediately when their desired property becomes available. The location of the property and their own space requirements must be well planned so that there is no pressure to move if they change jobs or have a second child.

For many, financing is the biggest hurdle to buying a home. Talks with the bank must be held at an early stage: What is the maximum price for the property? What requirements must be met in terms of equity and affordability? What mortgages are possible (obtain offers from various providers)?

Is an early withdrawal of pension fund assets (WEF) necessary, and if so, what impact will this have on retirement benefits? What capital payment taxes are incurred for an advance withdrawal of WEF? And how high are the ongoing costs for interest, amortisation, maintenance and ancillary costs?

With regard to affordability, it is often complained that the mortgage costs of 5 percent calculated by most banks are too high in the current zero interest rate environment and make it impossible for many families to acquire residential property. However, it should be noted that most people buy at the top end of their potential price range.

Buyers should consider whether they will still be able to finance their home if their partner suddenly wants to or can only work part-time. In addition, with the purchase of any property, unexpected follow-up costs can also arise.

Proactively address risks

The most important risks when buying a home can be divided into two categories: avoidable and unavoidable risks. Avoidable risks include carefully studying all available information about a property. This includes the official valuation, the building insurance policy, the extract from the land register, the floor plans and cadastral plans, the condominium and caretaker contract, as well as investment listings, building permit files and more.

An assessment of the neighbourhood and locality and the study of zoning plans also provide important information. A look at upcoming cantonal votes on legislative changes for heating and insulation of residential buildings can help to identify mandatory renovations in the future. Renovations are also associated with high costs - the current condition of the property must therefore be determined in detail and a cost plan drawn up.

Among the risks that can hardly be addressed, even despite the greatest care and the best knowledge and conscience of the selling party, are defects that are not known at the time of purchase. Even with new properties, the beautiful flat roof can lead to water damage years later.

Hidden costs also come into play

Last but not least, there are also hidden costs when buying a property. The land register entry, the notarisation of the purchase contract and the transfer of ownership tax amount to 1.5 to 4 percent of the purchase price, depending on the canton. As a rule, these costs are shared between the buyer and the seller. The preparation of the mortgage deed and the corresponding entry in the land register usually costs between 0.1 and 0.3 percent of the mortgage amount. If you use the services of an estate agent when buying a property, you must expect a commission of 1.5 to 3 percent of the purchase price. And if you sell your home, you will have to pay property gains tax, which can vary greatly depending on the length of time you have held the property and the canton.