The dream of owning their own four walls is an important milestone for many young couples in Switzerland. But in recent years, this dream appears to have become increasingly unrealistic. Rising property prices, strict financing rules and high mortgage interest rates make buying a property seem almost hopeless for young couples. In this article, we have looked into the challenges and opportunities for young couples who want to buy their own property one day.
Young couples face major challenges when buying a home in Switzerland. High property prices and strict affordability rules make buying a home difficult. There is often a lack of sufficient equity, as many have not yet been able to save enough after a long education period. At the same time, property prices are constantly rising, often making even smaller flats or houses unaffordable. In addition, young couples have to compete with financially stronger buyer groups, especially the older generation, which further worsens the problem. These factors mean that many young couples find it difficult to fulfil their dream of owning their own home despite having a good income. The number of young couples who can afford a mid-priced single-family home has fallen significantly in recent years. According to Zürcher Kantonalbank, only 9 % are now able to afford a single-family home in Zurich. The situation is not much better for condominiums, which have enabled many people to enter the owner-occupied property market. Five years ago, almost one in four young couples still had sufficient funds for a mid-priced flat; today it is not even one in five.
Even if you are one of the few tenants who can afford mid-priced residential property, this is no guarantee that you will be successful in obtaining such a property. You are in direct competition with prospective buyers from other age groups. Younger couples have significantly fewer financial resources than older generations. Older couples often have more savings and higher incomes, partly due to inheritances, longer work experience or simply because they have lived and saved for longer. This financial strength enables the older generations to compete for higher property prices.
The fact that many young families can only participate in the property market as spectators creates room for discussion and ideas. The path to owning one's own four walls must be made easier - the promotion of home ownership is even part of the constitution.
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Two approaches often discussed to facilitate access to home ownership are the reduction of the imputed interest rate or the introduction of state guarantees. A reduction in the imputed interest rate from the current 5 % to 3 % would benefit the older generations in particular, as it would increase the affordability of a mortgage, but the mandatory equity share would remain the same. The introduction of a state guarantee, on the other hand, is particularly helpful for those who have a high income but have not been working long enough to have saved significantly.
The reduction of the imputed interest rate, which is currently at 5%, is repeatedly proposed. A reduction to the frequently discussed 3% would particularly create leeway for those who are heavily restricted by the affordability rule. This includes almost one-third of young couples and even more than half of couples aged between 50 and 65.
The older generation, in particular, would benefit from this relief. The proportion of older people who could afford a medium-sized single-family home would increase by around 4 percentage points. Even access to the high-priced segment above 3 million francs would be easier for some. For young families, this would mainly facilitate access to the condominium market. An occasional glance at proprety adverts might become worthwhile for many again. However, they would also have to compete with financially stronger older generations. Bidding processes would continue to escalate.
However, a lower imputed interest rate is associated with increased risks. Until shortly before the great financial crisis, mortgage borrowers had to pay more than 4 % interest. Many of the families who would enter the property market due to a reduction in the imputed interest rate could face financial difficulties at this interest rate level.
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The "Start-up Aid Initiative " envisions that, thanks to state guarantees, the purchase of a home is possible with only 5 % equity. While a reduction in the imputed interest rate primarily helps homebuyers with a low income but high equity, a guarantee works in the opposite way: insufficient equity can be compensated by the guarantee, as long as the income allows the higher loan-to-value ratio. This could especially benefit those who are starting their careers after a long education and have not yet been able to save any assets, but have a high income. This situation often prevents the acquisition of properties despite a high income.
Young renters would have better financial opportunities, especially in the low-price segment, thanks to the guarantee. For instance, around 7 % of 30 to 40-year-olds could additionally finance a property price of CHF 1 million with a guarantee. This would mean that at least the cheapest 10 percent of single-family homes would be back within budget. Among 50- to 65-year-olds, the proportion would only increase by 4 percentage points at this price. The major disadvantage, however, is that this price segment has significantly shrunk due to the strong price development of single-family homes. This would make it easier for young couples to access more affordable condominiums.
The search for solutions to make home ownership affordable for young people is urgent. However, one must be aware that the proposed measures will hardly address the root cause, namely the structural undersupply of homes. They merely allow more potential buyers access to the home ownership market. Consequently, this would likely lead to a redistribution of home ownership, which would probably be coupled with higher prices. This could also be done in an unconventional way. History shows that new concepts can have positive effects: condominiums, which are cheaper compared to single-family homes, have enabled many to acquire homes even in central locations by utilizing smaller living units. In this sense, it is worthwile thinking about new ownership models today. So far, concepts such as time-limited homeownership or rent-to-own have not caught on.But perhaps the current market situation opens up new opportunities. Necessity is the mother of invention, as they say.
