Contributed by Tariq Dennison, Wealth Manager, MWC Group
Switzerland has one of the most expensive housing markets in Europe, but low Swiss interest rates may make buying more financially favorable than renting especially if you plan to stay for several years. This article outlines the basics of the buy-vs-rent calculation. If you decide that buying a home in Switzerland is the better option, we explain step by step how Swiss mortgages work and how to find the best financing for your property.
The “Buy vs. Rent” Decision in Switzerland
If you are moving to Switzerland from New York, London, or Hong Kong, you might not be at all surprised by the prices of houses or apartments in Swiss cities, but for those coming from more affordable housing markets, the price of even basic accommodation in Zurich, Basel, or Geneva may give you sticker shock. General information on Swiss real estate prices can be found on the Federal Statistics Office’s property price page.
Even a modest-sized apartment in one of these major cities can easily rent for over 3,000 francs per month or sell for over 1,000,000 francs, which is higher than in many other continental European cities due to the relatively high salaries and relatively low taxes in Switzerland. That then poses the question: when is it better to buy, and when is it better to rent in Switzerland?
The Case for Renting Your Home in Switzerland
A renter generally needs to put down a security deposit, which is often equal to an extra two- or three-months’ rent, in addition to committing to paying the monthly rent for a contracted lease period, which often lasts at least one year but can be negotiated with some landlords. At the end of the lease contract, the renter faces the risk that the landlord may increase the rent or not offer a renewal lease. Protecting against these two risks is a primary reason many long-term residents prefer to own their homes. On the other hand, one major advantage of renting is the freedom to pack up and leave as soon as the lease is up, with no further obligations or money tied up in a house that needs to be sold.
The Case for Buying Your Home in Switzerland
A home buyer, on the other hand, needs to commit significantly more capital upfront to purchase the home, and when financing the home with a mortgage, must commit to making interest and principal payments on the mortgage until it is fully paid off, either over the term of the mortgage or when the home is sold. In addition to the significant upfront capital commitment, the transaction costs of getting into and out of a purchased property are also significantly higher than renting, so it often makes sense to buy only if you plan to stay in that home for longer often at least 5–10 years.
When comparing the total annual costs of renting vs owning a home, the rent needs to be compared with the total amount a buyer needs to pay in mortgage interest, higher insurance costs, and maintenance costs. In this comparison, we often exclude the portion of the mortgage payment that goes towards the principal, as this builds up your equity and is comparable to a renter saving excess cash after paying rent. An example of such a comparison is provided in more detail below when we consider how interest rates and other costs compare with rent costs.
Tax-wise, there is a difference between buying and renting a home in Switzerland, but it may not be as significant as it first seems. Rent is generally not tax-deductible in Switzerland, whereas there is generally some tax deduction for mortgage interest. Additionally, as a homeowner, you are also assessed a rental value on your home, which is then added to your taxable income, so overall, there may not be a significant income tax benefit to buying vs renting. In terms of wealth tax, your home equity is generally counted as part of your taxable wealth, but the same amount of wealth in the hands of a renter invested in financial assets would also be subject to the same wealth tax.
Key Factors in the Buy vs. Rent Decision Overall, the decision to buy vs rent a home in Switzerland tends to come down to the following major factors:
How long you plan to stay
If you are only planning to stay in this home for a few years, renting may provide you with significantly more flexibility to move in and out without the significant transaction costs of buying and selling a home.
If you plan to stay in this home for many years, or even decades, buying your home protects you from rent increases and lease non-renewals while allowing you to make the home your own in ways that many rented properties may not.
Your financial situation
A home buyer needs at least a 20% deposit, then must commit to regular mortgage payments and be prepared to cover unexpected and uninsured expenses (e.g. a broken heater).
Purchasing a home makes sense only if these financial commitments won’t stretch your budget too thin.
Interest rates and ownership costs vs. rental costs
Suppose you have the option to:
Rent a home for 3,000 francs per month (36,000 francs per year)
Buy the same home for 1,250,000 francs, using 250,000 as down payment from your savings and pensions, and borrowing the remaining 1,000,000 francs as a mortgage.
In this case, you would compare the annual rental cost (36,000 francs) with the estimated annual costs of homeownership:
a. Mortgage interest – At 1.2% on 1,000,000 francs → 12,000 francs per year, plus
b. Maintenance costs – Homeowners must finance their own repairs; unlike renters whose landlords typically handle them. Estimated at 10,000 francs per year, plus
c. Insurance costs – Homeowners generally require more extensive coverage than renters. Estimated at 2,000 francs per year
Total estimated ownership cost: 24,000 francs per year
In this scenario, adding up the three ongoing costs (a–c), a buyer might estimate the total annual cost of owning this hypothetical home at 24,000 francs, compared to 36,000 francs per year in rent. This potential 12,000-franc-per-year savings makes buying an attractive option provided that the time horizon and financial stability factors also align.
How Do Swiss Mortgages Work?
Foreign professionals from non-EU/EFTA countries living and working in Switzerland are generally permitted to buy a primary home in Switzerland on a B permit, while C permit holders and EU/EFTA nationals can also buy 2nd homes, holiday homes, and other investment property under Lex Kohler.
The next question is then “Can a foreigner get a home mortgage in Switzerland?”, to which the short answer is a clear “Yes!”. The two main requirements you need to satisfy are:
A down payment of at least 20% is required, and more than 20% may be required if you are paying more than the assessed value of the property or if the property is seen as riskier than usual. Half of this 20% down payment may be drawn from your Swiss pension, while the other half needs to come from your own cash savings.
Your income needs to be enough to cover the mortgage threefold under a “stress test” scenario, generally one which assumes interest rates rise by 5 percentage points.
If we use a round-number example of buying a home for 1,000,000 francs, this means you would need to present a down payment of at least 200,000 francs, of which up to 100,000 can come from your 2nd pillar Swiss pension at work and/or your 3rd pillar Swiss personal pension, and the other 100,000 needs to be in cash. The mortgage then provides you the other 800,000 francs to buy this home, and this 80% from the mortgage lender breaks down into two parts:
The “first mortgage” only covers 2/3 of the value of your home, or around 650,000 francs in this case. You are not required to make principal payments towards this portion of the mortgage, so in theory, could make interest-only payments on this amount for as long as you own the home, and
The “second mortgage”, covering the remainder of the mortgage balance, or around 150,000 francs in this case. This part of the mortgage principal is required to be paid down within 15 years, either directly, or indirectly as described in the next section.
The requirement to pay down the 150,000 second mortgage over 15 years spreads out as an even 10,000 francs per year, or 2,500 francs per quarter, towards your mortgage principal. On top of that, interest is calculated, either at a fixed or variable SARON-based rate (explained later in this article), which if we assume is at a round-number rate of 1.20% per year, is another 2,400 francs over the first quarter on the starting mortgage balance of 800,000. That brings the total mortgage payment on this 1,000,000-franc house totaling around 4,900 francs, or less than 1,700 francs per month.
What is “Indirect Amortization”, and how does it help me?
Of the 10,000 francs per year you need to pay towards the principal of this mortgage, you have the option to either pay it directly to the mortgage lender, and so reduce your mortgage balance, or alternately, to pay it “indirectly” into a 3rd pillar pension where you may be able to earn a higher rate of return than your mortgage interest rate. In 2025, the maximum amount an employee covered by a 2nd pillar pension can put into a tax-deductible 3a is 7,258 francs, so if you want to do indirect amortization on the full 10,000, you have two options:
If you are married, you and your spouse can each make 3a contributions to get the maximum tax deduction and cover your amortization obligations entirely with your 3a, or
If you cannot cover all your amortization with a 3a, you can complete your indirect amortization with a 3b, which is not tax deductible, but still may be better than direct amortization if you expect to earn a higher rate of return on your 3b than your mortgage interest rate.
Fixed vs Floating SARON-linked Mortgage Rates- Which is Better?
Many Swiss mortgages are offered with an interest rate that is fixed for the first 3–15 years, but very rarely longer than that. This fixed-rate option can provide valuable stability in your quarterly mortgage payments over these years, but it comes with two drawbacks:
If interest rates decline, you are locked into the higher fixed interest rate you secured.
If you sell your home within the fixed period and rates have gone down since you took out the fixed-rate mortgage, you may need to pay a penalty to compensate the lender for the higher interest rate you owed over the rest of the fixed period.
In other words, unlike mortgage markets such as the U.S., Swiss mortgages do not offer a free right to prepay or refinance the mortgage at lower rates. This is one reason mortgage rates in Switzerland can be lower relative to other Swiss interest rates than U.S. mortgage rates are to other U.S. interest rates. For home buyers whose budgets and liquidity can handle interest rate fluctuations, a SARON-based mortgage offers more flexibility, with the risk that your interest rate will rise and fall with the market. For a more detailed explanation about Switzerland’s SARON interest rate, please see this article SARON: Your Guide to Getting the Best Interest Rate in Switzerland
Next Steps on Your Home Purchase and Mortgage Shopping Your MWC adviser can help you through the entire process of shopping for a mortgage to ensure you get the best rate and determine which indirect amortization solutions, if any, can help you maximize your tax savings and keep you invested as you pay down your mortgage.
Manentia Wealth Consulting Group AG (Swiss company registered number: CHE-116.117.306) is registered with FINMA as Insurance Broker under number 29575 and member of PolyReg/PolyAsset as Portfolio Manager. Manentia Wealth Consulting AG is the parent company of Manentia Wealth Consulting Group Limited (Maltese company registered number: C80087) and licensed (MWCG-IF-15623) by the Malta Financial Services Authority (MFSA) to provide investment services as portfolio manager and to act as Enrolled Insurance Broker.
This post is intended for informational purposes only and does not constitute investment advice or an invitation by MWC Group to buy or sell any investment. While MWC Group has sourced this information from what it believes to be reliable sources, it makes no representations or warranties regarding its accuracy or completeness.
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