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  #101  
Old 08.12.2011, 19:23
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Re: buying a house: where to start?

Makes sense - esp from the point of view of a conservative Swiss banker. Could very well be 5%.

In any case, with interest rates being what they are, it does seem to be a good time to buy, provided you can do so in the 'non-overhated' areas.
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  #102  
Old 08.12.2011, 19:36
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Re: buying a house: where to start?

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Apparently everyone!

So what about the loan: Were you approved for it with an income less than 4x the purchase price? I think they look at it differently, if 5% of the repayments no more than 30% of your income. Something like that I don't remember exactly.
Well, this was another thing which stopped me from sleeping...

We went to a broker since our french is not good. That guy included all our savings, including second/third pillar pension, some money we have on a foreign bank account from our previous work life, well every single cent he identified, to our "fond propres". This way we got just inside the 30% of income. He was using 4% as the rate.

The broker also told us that there were lots of young people in our situation, that's a wise thing to buy now more than ever as its a rock solid investment, that prices would never go down in Geneva, that they never ever went down in his 25+ year career etc.

All brilliant - until you start to do some research by yourself...
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  #103  
Old 08.12.2011, 19:59
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Re: buying a house: where to start?

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Makes sense - esp from the point of view of a conservative Swiss banker. Could very well be 5%.

In any case, with interest rates being what they are, it does seem to be a good time to buy, provided you can do so in the 'non-overhated' areas.
Seems 3-5% is being used depending on the bank. Anyway, i was surprised to find out we were at 4.5 times income, but that our payments are only 15% of our income. So, I'm wondering does the 3 vs 5 times income thing really matter? I honestly don't know.

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Well, this was another thing which stopped me from sleeping...

We went to a broker since our french is not good. That guy included all our savings, including second/third pillar pension, some money we have on a foreign bank account from our previous work life, well every single cent he identified, to our "fond propres". This way we got just inside the 30% of income. He was using 4% as the rate.

The broker also told us that there were lots of young people in our situation, that's a wise thing to buy now more than ever as its a rock solid investment, that prices would never go down in Geneva, that they never ever went down in his 25+ year career etc.

All brilliant - until you start to do some research by yourself...
It's never a good idea to have to scrap up all the money you have to put down a deposit.

Although he's right. Property values haven't gone down in his 25 year career.
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  #104  
Old 08.12.2011, 20:15
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Re: buying a house: where to start?

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Well, this was another thing which stopped me from sleeping...
The broker also told us that there were lots of young people in our situation, that's a wise thing to buy now more than ever as its a rock solid investment, that prices would never go down in Geneva, that they never ever went down in his 25+ year career etc.
Not sure how old you are, but probably too young for desperately needing to buy NOW and THERE & putting your assets at risk...
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  #105  
Old 08.12.2011, 20:19
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Re: buying a house: where to start?

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Not sure how old you are, but probably too young for desperately needing to buy NOW and THERE & putting your assets at risk...
Yes, we gave up for the moment given the circumstances & upcoming crisis. We'll review in 1 years time... if we still are around, that is.
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  #106  
Old 08.12.2011, 20:49
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Re: buying a house: where to start?

If you are not sure if you are here medium term, it is no good to even think of buying. You will be taxed very heavily on any profit- here in Neuchatel this is dropped after 5 years.
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  #107  
Old 09.12.2011, 00:29
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Re: buying a house: where to start?

i don't think it makes sense to buy if you need to sell. because there are heavy transaction costs (and potential losses) and frankly, there might not be a market to sell into.

when i bought, i basically assumed i would never see the deposit again and would never be able to sell the property and so it was important that the property was such that it would be capable of being rented out and cover it's costs through rental income.

since i'm now about to move for a new job, i'm glad i made sure of this!
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  #108  
Old 09.12.2011, 00:49
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Re: buying a house: where to start?

GVA, this is exactly what I said in a previous post, to quote you:

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We went to a broker since our french is not good. That guy included all our savings, including second/third pillar pension, some money we have on a foreign bank account from our previous work life, well every single cent he identified, to our "fond propres". This way we got just inside the 30% of income. He was using 4% as the rate
You are over borrowing and that is never good. I was always taught by my father that your total household outgoings should never exceed 25% of your net income (ok, so I broke his rule on a number of occasions), yes I was lucky, but luck is the significant word. My mortgage affordabililty quote is based upon 5% which is the top end of the average (expected) interest rate. I also have enough funds to easily cover the down payment, if you are struggling on either the affordability or down payment then perhaps you should not consider buying or re-align what you can reasonably afford. I can understand why you are concerned but that is only because you yourself are already doubting that you can afford the purchase long term.

Another point to consider is that you can not compare the UK/US finance model to that of Switzerland. I agree that 1.4 mill Chf's is a substantial amount of money, but in reality it is only one third of that that can be compared to other financing models as you are only ever expected to repay of 35% of the capital (the rest sits on a lifetime mortagage) where as in the UK/US you are expected to pay off the entire capital by normal retirement age

This situation is why so many people are in trouble now, not because home ownership is bad but purely because they borrowed too much in the first place. As has been said beforee if you can not afford to lose the investment (gamble) then you should not enter in to it. For people who can genuinely afford to lose the money or who are prepared to sit it out and wait for any loss to be regained (ie. family home not investment) then over a 25 year period they will still make a gain (probably substantial)

Last edited by kb92830; 09.12.2011 at 01:14.
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  #109  
Old 09.12.2011, 09:56
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Re: buying a house: where to start?

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Just as a very simple example:

Buying 600 000 CHF house.
Mortgage bond term 30 years, 2% interest p.a. fixed.
Deposit = 30% of 600 000 CHF = 180 000 CHF (should you be so lucky).
Bond value = 420 000 CHF.
Bond repayment = 1563 CHF per month (interest and principal)

Leading a lot of folks to envisage ~ 1000 CHF / month savings compared to renting a 2500 CHF / month apartment.

Add 2% annual costs for maintenance and forced capital upgrades:
2% x 600 000 CHF = 12 000 CHF / annum = 1000 CHF / month.

Now the cost of ownership = 1563 CHF + 1000 CHF = 2563 CHF / month and *poof* goes the saving.

And this excludes all other expenses for which owners are liable.
That's a little bit too simplistic and not entirely accurate. You need to take into account some other facts:

1) Mortgage repayment through a 3rd pillar account gets you 1.75% interests and a (around) 20% tax saves (see this thread).

2) Interests are tax deductible (this usually goes away with the increase coming from the "valeur locative")

3) Maintenance costs are tax deductible.

So in your example the real calculation would be
  • Repayments: 10356/year - (20%) - (1.75%) = around 8100 for the first year, then goes down by around 1.75% early
  • 2% maintenance: 12000 - (20%) = 9600
  • 8400 interest goes even with the valeur locative
At the end:

8100 + 9600 + 8400 = 26100/year = 2175/month
Compared to the initial 2500/month of renting.

Furthermore, if you negotiate a better interests for your 3rd pillar, if your valeur locative is less than the interests, and if your taxation is higher, the fork is even bigger in favour of the mortgage.

Now, of course, this is just for numbers, without considering all the other aspects of owning vs renting, that are of course too personal
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  #110  
Old 09.12.2011, 12:18
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Re: buying a house: where to start?

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That's a little bit too simplistic and not entirely accurate. You need to take into account some other facts:

1) Mortgage repayment through a 3rd pillar account gets you 1.75% interests and a (around) 20% tax saves (see this thread).

2) Interests are tax deductible (this usually goes away with the increase coming from the "valeur locative")

3) Maintenance costs are tax deductible.

So in your example the real calculation would be
  • Repayments: 10356/year - (20%) - (1.75%) = around 8100 for the first year, then goes down by around 1.75% early
  • 2% maintenance: 12000 - (20%) = 9600
  • 8400 interest goes even with the valeur locative
At the end:

8100 + 9600 + 8400 = 26100/year = 2175/month
Compared to the initial 2500/month of renting.

Furthermore, if you negotiate a better interests for your 3rd pillar, if your valeur locative is less than the interests, and if your taxation is higher, the fork is even bigger in favour of the mortgage.

Now, of course, this is just for numbers, without considering all the other aspects of owning vs renting, that are of course too personal
I was talking about the ~1000 CHF that can go *poof* OK? The initial 1000 CHF difference in monthly cash outlay - without adjusting for tax -that get some people very excited about buying. Not you, you obviously have a lot more financial savvy.
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  #111  
Old 09.12.2011, 13:17
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Re: buying a house: where to start?

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i don't think it makes sense to buy if you need to sell. because there are heavy transaction costs (and potential losses) and frankly, there might not be a market to sell into.
I agree with you wholeheartedly. But this is per defenition what folks are doing when they invest their retirement funds in buying a house to live in.

As you observed, it can be bloody difficult to realize that capital growth, for a variety of reasons, such as a weak market, transaction costs, and one that I've seen first hand: emotional attachment and where to go next - when nearing retirement age. Can be very traumatic.

The property market is not a liquid market such as the stock market or the money market. They can all go up and down yes, but you don't have to agonise to find a willing buyer.
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  #112  
Old 09.12.2011, 13:39
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Re: buying a house: where to start?

Short term buying here just does not make any sense- it never has, and it certainly does not now. There are many expenses linked to buying and selling- which take quite a chunk. A French friend of mine bought in the UK at the right time and doubled the price in less than 2 years. This won't happen here, that is for sure! Won't happen in the UK now either.

To go back to the OP - who lives in the Yverdon area. Another factor that can result in price increase is improvements to roads and public transport. A new train line will soon link Yverdon with Fribourg et Berne. So the time to buy in Yverdon is NOW - before others have twigged /wink.
And in the NE Jura, public transport with new train lines will soon be in effect- making commuting much easier.
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  #113  
Old 09.12.2011, 14:57
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Re: buying a house: where to start?

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This situation is why so many people are in trouble now, not because home ownership is bad but purely because they borrowed too much in the first place. As has been said beforee if you can not afford to lose the investment (gamble) then you should not enter in to it. For people who can genuinely afford to lose the money or who are prepared to sit it out and wait for any loss to be regained
Thanks.

Even if according to the rules, I'm at the limit, I don't have sufficient confidence that *both* my partner and I will be keeping our jobs over the next 3-5 years here (and I wonder who has this confidence nowadays!?). In case of one of us losing the job, we would likely need to quit the region (I guess like many others in the EF...)
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  #114  
Old 09.12.2011, 15:47
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Re: buying a house: where to start?

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This situation is why so many people are in trouble now, not because home ownership is bad but purely because they borrowed too much in the first place. As has been said beforee if you can not afford to lose the investment (gamble) then you should not enter in to it. For people who can genuinely afford to lose the money or who are prepared to sit it out and wait for any loss to be regained (ie. family home not investment) then over a 25 year period they will still make a gain (probably substantial)
Yes, but thanks to the many people who are foolishly stretching out and borrowing well beyond their means, there are more people buying and this is pushing up prices so that the rest of us are having to over-stretch too. If the worst comes to the worst I think I can live with my stocks losing all their worth. But I don't think I want my family to be turfed out of my home. Therefore I am putting my risk where I can afford to have it and where I can best afford to manage the risk and where I can most easily take it with me if I have to relocate at an inopportune moment.
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  #115  
Old 10.12.2011, 12:17
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Re: buying a house: where to start?

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I wonder who the heck has 2 x 140K CHF income on this forum?
You don't have to earn 2 x 140K, rather buy something that is closer to 800K rather than 1.4M. The you are looking at 2 x 100K (or 1 x 80K plus 1 x 120K which is more typical). Then the 4x annual come rule of thumb is fulfilled.

Maybe that means buying a flat rather than a house.

It boils down to the simple rule: don't buy something you can't afford.
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