Home Ownership Still More Expensive Than Renting

Home Ownership Still More Expensive Than Renting

Mon, Jun 10th 2024

Lower mortgage interest rates and rising rents should reduce the home ownership premium soon. By early 2025, buying will likely be cheaper than renting.

KEYSTONE/Christian Beutler

Property buyers are currently facing greater financial burdens. However, lower mortgage interest rates and sharply rising rents should reduce the home ownership premium soon. Buying should be cheaper than renting by early 2025.

According to UBS, the annual cost of a medium-sized condominium with four and a half rooms and 110 square meters of living space is currently CHF 32,500. The annual rent for such an apartment costs CHF 30,500. This results in an ownership premium of 7 %. UBS shared these insights in a study published on Monday.

In summer 2023, this premium was still 16 %. Someone who took out a long-term mortgage last summer will have to shoulder cumulative additional costs of almost CHF 50,000 by 2033 according to current forecasts.

Thanks to lower mortgage interest rates, the property premium is now significantly lower than it was in summer 2023. The premium is expected to reverse to a discount of 3 % by early 2025. The main drivers are the two key interest rate cuts still expected from the SNB.

The decline in the property premium is broadly based across regions. In the cantons of Bern, Solothurn, Aargau, Schaffhausen, and Thurgau, it is already below 5 % in many places. In some regions of Vaud, Fribourg, and Valais, there is already a property discount. In contrast, the premium in mountain regions remains high.

A property discount of 20 to 30 %, as seen during the negative interest rate phase from 2015 to early 2022, is currently a long way off. However, the falling property premium should gradually increase demand for owner-occupied homes again after the slowdown in 2022 and 2023.

The long-term financial success of a home purchase depends not only on running costs but also on land value development. According to the bank, an increase in value of just 0.4 % this year would offset the current property premium.


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