Should I buy a home now instead of continuing to rent?

Renting vs. buying: the big analysis

1. The financial comparison: housing costs compared

The classic comparison is between monthly costs.

• When renting: you pay the monthly rent and ancillary costs. Repairs to the building structure (roof, heating) are the responsibility of the landlord.
• When buying your own home, your costs consist of mortgage interest, amortisation (debt repayment) and maintenance and ancillary costs.

For a long time, it was cheaper to buy your own home than to rent a comparable flat. With interest rates rising, this gap has narrowed somewhat. Nevertheless, as rents are also rising, the pendulum often swings back in favour of ownership in the long term.

Maintenance costs are an important factor. If you want to buy your own home, you need to build up reserves. Experts estimate that you will need around 0.7 to 1 per cent of the building's value per year for renovations and ancillary costs. If you forget this, you may be in for some nasty surprises.

2. Opportunity costs: what about your equity?

One aspect that is often forgotten when people buy a home is opportunity cost. To buy a home in Switzerland, you need to contribute at least 20 per cent equity.

The critical question is: what would happen if you didn't put this money into the house, but continued to rent and invested the capital in the stock market? Historically, stock markets have often achieved higher returns than real estate. However, buying a home is a form of "forced saving". Very few tenants invest the difference between renting and owning a flat every month in a disciplined manner. In addition, when you buy a home, you benefit from leverage: you participate in the increase in value of the entire property, even though you have only invested 20 per cent of the money.

3. Inflation protection and increase in value

Tangible assets are considered protection against currency devaluation. When you buy your own home, you effectively freeze your housing costs (apart from the interest rate risk). While rents rise over the years due to inflation, the purchase price you paid once remains fixed.

Historically, Swiss property prices have almost always moved in one direction: upwards. Even if short-term corrections are possible, buying your own home is often a solid way to build wealth in the long term. Especially in good locations in economic centres such as Zurich, Zug or Geneva, the increase in value often exceeds the costs.

4. Flexibility vs. creative freedom

Not everything is about money. When you buy your own home, you are buying freedom. You can tear out the kitchen, paint the walls and design the garden however you want. No one can give you notice because they need the property for their own use. This emotional return is difficult to measure in pounds sterling, but for many it is decisive.

On the other hand, renting allows you to remain flexible. A job offer in New York or London? Terminate your lease and go. If you buy your own home, you are tied down. Selling often takes months and incurs costs (property gains tax, estate agent fees). If you are not yet settled in your career or private life, you may want to wait before buying your own home.

5. The market timing factor: is "now" the right time?

Many people ask themselves: "Should I wait until prices fall before buying my own home?" Market timing is extremely difficult. Waiting for property prices in Switzerland to fall significantly has mostly been a bad strategy over the last 20 years.

• Interest rates: These have stabilised after the shock and are tending to fall slightly.
• Supply: Immigration keeps demand high, while supply (new construction) is stagnating. This suggests that prices will remain stable or continue to rise. If you can manage the financing (affordability) and find the right property, "now" is often better than "sometime".

6. Affordability as a reality check

Before you decide to buy your own home, the bank will do a reality check. Your housing costs (calculated as 5% interest + amortisation + maintenance) must not exceed one third of your gross income. This hurdle is often higher than the question of "rent vs. interest". Many people could easily pay the monthly interest, but fail to meet the calculated hurdle when they want to buy their own home. Check this early on.

Conclusion

The answer to the question "Should I buy my own home now?" depends on your time horizon and your risk tolerance. From a purely financial point of view, buying is usually worthwhile in the long term, as you build up assets instead of "burning" rent and benefit from the increase in value. In the short term, however, renting can be more liquidity-friendly in periods of high interest rates.

If you plan to stay in one place for at least 10 years, have the necessary equity and value creative freedom, buying your own home is still a good idea, even in the current market environment. The emotional security and protection against inflation often outweigh the lower interest rate difference.

Use Loft to have your individual situation analysed impartially and find the right strategy for your future housing needs.

Glossary

• Opportunity cost: The lost benefit of an alternative that was not chosen. When buying a home, this is the return that your equity could have achieved on the stock market.
• Affordability: The ratio between income and ongoing property costs. Banks usually require that the imputed costs do not exceed 33% of gross income.
• Amortisation: The regular repayment of the mortgage debt to the bank. Anyone who wants to buy their own home must repay the second mortgage within 15 years.
• Maintenance costs: Ongoing costs for maintaining the value of the property (e.g. repairs, renovations) that you as the owner must bear yourself (approx. 0.7–1% of the value per year).
• Leverage effect: When buying your own home, you benefit from the increase in value of the entire property, even though you have only paid a small portion (20%) yourself.