Buying has become much more expensive than renting in Switzerland, according to a report by the bank Credit Suisse.
The market for owner-occupied homes is currently undergoing a reversal of fortunes, triggered by the spike in mortgage interest rates in 2022, said the bank. Although owners enjoyed unprecedented low mortgage rates for a decade, rates have more than doubled over the past year.
After 13 years, buying is more expensive than renting again. In aggregate the annual financial cost of owning a residential property is now 47% higher than renting a comparable apartment. This difference, expressed as an ownership premium, is shown by the gap between the dotted blue and dotted yellow lines in the chart below. The chart also shows how most of the recent premium is driven by higher mortgage interest costs, represented by the shaded light blue area.
As a result, buyer demand for residential property has taken a hit. However, it has by no means disappeared altogether, said Credit Suisse. After a boom triggered by the Covid-19 pandemic, demand has returned to its lower long-term average.
And while residential property has become significantly more expensive for new buyers, in many cases existing owners who took out long-term fixed rate mortgages continue to benefit from low ownership costs.
Over time the cost gap between renting and owning may close, predicts the bank as a construction slump, driven by rising costs and higher interest, reduces the supply of new rental properties, particularly if this is combined with a robust economy and rising net migration.
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Credit Suisse article(in French) –Take a 5 minute French test now
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Now, addressing the article about the real estate market in Switzerland, the information provided by Credit Suisse reflects a significant shift in the country's housing landscape. The surge in mortgage interest rates in 2022 has had profound effects on the dynamics between buying and renting. Here's a breakdown of the key concepts mentioned in the article:
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Reversal of Fortunes in the Owner-Occupied Homes Market:
- The report highlights a reversal in the market for owner-occupied homes in Switzerland.
- This shift is attributed to a substantial increase in mortgage interest rates in 2022.
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Impact of Mortgage Interest Rates:
- For a decade, owners enjoyed historically low mortgage rates. However, over the past year, rates have more than doubled.
- The chart in the article illustrates the impact of higher mortgage interest costs on the overall cost of owning a residential property.
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Cost Discrepancy Between Buying and Renting:
- The annual financial cost of owning a residential property is now 47% higher than renting a comparable apartment.
- This difference is expressed as an ownership premium, as shown by the gap between the dotted blue and dotted yellow lines in the provided chart.
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Buyer Demand and Market Behavior:
- The surge in mortgage rates has negatively affected buyer demand for residential property.
- Despite the downturn, the report suggests that demand has not disappeared entirely, but it has returned to a lower long-term average.
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Impact on Existing Owners vs. New Buyers:
- Existing owners who secured long-term fixed-rate mortgages during the period of low rates continue to benefit from lower ownership costs.
- In contrast, new buyers are experiencing a significant increase in the cost of purchasing residential property.
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Predictions for the Future:
- Credit Suisse predicts that over time, the cost gap between renting and owning may narrow.
- This projection is based on factors such as a potential construction slump, rising costs, higher interest rates, and a reduction in the supply of new rental properties.
In summary, the real estate landscape in Switzerland is undergoing a notable transformation due to the spike in mortgage interest rates, leading to a resurgence in the cost disparity between buying and renting. Existing owners with fixed-rate mortgages are shielded from the full impact, while new buyers are grappling with significantly higher costs. The future trajectory of this market will likely be influenced by factors such as construction trends, economic conditions, and migration patterns.
