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  #81  
Old 06.02.2019, 09:53
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

This is wrong. It is 63% rolling and 17% repayment in my recollection. The 17% mortgage is not at such a high rate as you say. The ability to repay is based on a 5% interest rate but it is 3x earnings not 5x. On a 1m mortgage, it is 200k not 800k. Because it is based on 3x earnings not 5x it will be a lot less than 200k earnings required. The mortgage is tax deductible but you forgot that implied rental value is added like income (Eigenmietwert).

Please be careful with your statements!

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I'm a bit late to this and have not read all the comments, so apologies if I repeat what has been said.

A bank will loan 80% of the distress value of the property following their valuation. Typically this will then equate to 65% of the sale price. The 15% can the be financed with another mortgage but at a much higher interest rate, typically 2.75 - 3%

The they calculate your ability to repay the interest based on an interest rate factor of 5%, and they would expect you to earn 5 times that amount.

Ona chf 1m mortgage you'd have to come up with 800k and be earning chf 200k to get it, even though interest rates are currently around 1.35% on a 10 year mortgage.

The one big advantage though, that I can't see being mentioned, is that the interest you pay is tax deductible, whereas what you pay in rent is not.
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  #82  
Old 06.02.2019, 10:31
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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My annual interest payment (on which I get tax relief) is approx. 4,700 CHF. I have approx. 15,000 added to my taxable earnings for Eigenmietwert, certainly no tax advantage there.
Just because the interest rate you were offered is exceptionally low, and the assumed rentable income reasonably high doeen't mean you're not getting a tax break, just that it's not as large as it might have been.

Last edited by Ace1; 07.02.2019 at 00:22.
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  #83  
Old 06.02.2019, 11:30
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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The one big advantage though, that I can't see being mentioned, is that the interest you pay is tax deductible, whereas what you pay in rent is not.
the interest is separate from the house. deductible also if you buy a house and rent it out to somebody else.

renting a house is tax free, where as living in your own house is taxable.
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Old 06.02.2019, 21:51
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

Firstly, 0.8% is not that much lower than can be achieved by searching online.
It is lower than you will normally see partly because 50% of it is a Libor tracking rate - it is not all fixed. Actually the employee discount I mentioned is not that great a benefit as the commercial rate of the particular bank is not super competitive in the first place.

Secondly the point is that the 'tax break' is more than offset by a different tax (you'll find that x% of 15,000 is rather more than x% of 4,700). This will be true for many people currently considering the historically low interest rates. It is rather odd to consider a tax break as a benefit but ignore the corresponding tax which is intentionally there to make home owners pay extra for the privilege of not paying rent. In the current scenario I would benefit by the long discussed reform of eigenmietwert.
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Old 07.02.2019, 00:21
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

while eigenmietwert is hated by many. i think this is actually a great tax: it ensures (in theory) neutrality between renting and owner-occupation as well as encouraging efficient utilisation of housing resources.
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  #86  
Old 07.02.2019, 10:30
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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the interest is separate from the house. deductible also if you buy a house and rent it out to somebody else.

renting a house is tax free, where as living in your own house is taxable.
you rent a house with taxed money and living in yiur own house is taxable by its renatal value.

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while eigenmietwert is hated by many. i think this is actually a great tax: it ensures (in theory) neutrality between renting and owner-occupation as well as encouraging efficient utilisation of housing resources.
I am surpized by this comment. The previous one gave the impression you got it wrong. After all both Eigenmietwert is quite fair. Owners and renters pay basically the same tax for the same house. Now if one decides to buy for whatever reason, then that is his business. And all interest rates are tax deductible, not just mortgages.

Nevertheless, as an owner, if I could vote I would vote for to abolish Eigenmietwert, but that is just the selfish me
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Old 07.02.2019, 10:48
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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Nevertheless, as an owner, if I could vote I would vote for to abolish Eigenmietwert, but that is just the selfish me
Yes, but if they do abolish it, I believe that there will be other rules that are not so nice... making it more difficult to claim for renovations unless a first time buyer, for example.
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Old 07.02.2019, 11:27
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

While Eigenmietwert first got me hoppin' mad, on reflection I started to see it as a fairer tax... in comparison to the typical property tax regimes I have paid in other countries.

Eigenmietwert is coupled with one's income, not just property value. Back home, property taxes were based solely on the assessed value of the property - meaning many young couples could afford the house but not the taxes and so could not get on the property ladder or elderly on fixed incomes had to sell their paid-off homes because the tax was out of their means.

With Eigenmietwert one pays less when one earns less - I see that as a more sensible system.

But that's all water under the bridge now that parliament has decided to do away with Eigenmietwert, as well as significantly limit mortgage interest and other deductions. At least from what I have read this seems to be a done deal. (Someone please correct me if I am wrong.)

Under the new system if what I understand is correct those who have taken out large mortgages due to affordability with low interest rates could find themselves in a less favourable position. The details of the abolition of Eigenmietwert are not yet finalised, AFAIK, expected sometime this quarter. How one approaches financing a house, or even determination of affordability, might change with these changes. Or not, YMMV.

I just fear that without Eigenmietwert revenue other methods of property taxation might be considered in the future... and having experienced the joys of paying painful property taxes elsewhere while we pay relative peanuts in Eigenmietwert, I would have preferred the status quo.
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  #89  
Old 07.02.2019, 11:51
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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But that's all water under the bridge now that parliament has decided to do away with Eigenmietwert, as well as significantly limit mortgage interest and other deductions. At least from what I have read this seems to be a done deal. (Someone please correct me if I am wrong.)
i would also be interested to know the current status. last i heard, the main homeowner lobby agreed in principle to this. makes sense to push through now while interest rates are low. i'm sure we'll hear squealing when rates go up and costs become non-deductible.
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Old 09.11.2019, 10:16
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

Salaries here are stagnant. Employing people here just on the face value of gross salary (excluding office space and social costs etc) is huge compared to a lot of other countries. It’s also historically a low inflation country.

In addition to this, the next time there is a global crash, more people will again seek the safety of the franc...but since the last recession it didn’t reset...which means the franc goes even higher and salaries (vs RoW) seem even more expensive to companies looking to hire globally

If anything salaries will have to go down
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Old 09.11.2019, 10:45
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

The facts are simple:

when I arrived here in 1989 the population of Switzerland was 6,600,000 today it is 8,500,000 - an increase of over 27%.

All the additional 1.9 million inhabitants have to be accommodated- naturally they did not all buy their property, but are a massive driver as people move up the housing market.

Unless the population falls or even flatlines, regardless of interest rates, prices will climb...
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Old 09.11.2019, 11:13
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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Unless the population falls or even flatlines, regardless of interest rates, prices will climb...
Prices rise based on ability to pay & nothing else. Salaries are not rising in CH, many are significantly lower than 20 years ago.
Since rent coats & purchase costs are restricted to 35% of income, future rises are severely restricted.
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  #93  
Old 15.11.2019, 22:06
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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Prices rise based on ability to pay & nothing else. Salaries are not rising in CH, many are significantly lower than 20 years ago.
Since rent coats & purchase costs are restricted to 35% of income, future rises are severely restricted.
Wages have grown in real terms 8/10 last years, in nominal terms 10/10 years. Yes, wages don't grow 10% yoy like they do in some countries in Eastern Europe, but I don't know where this story of stagnant wages comes from. Maybe this is the case in some circles (i.e. expat jobs in early 2000s vs. now), but is definitely not the case for the median wage in Switzerland.

On housing prices, real estate in general is one of the safest assets you can hold, and that goes doubly so for Swiss real estate. The reason prices will still continue to rise are quite simple: SNB will keep interest rates low for many more years to come, as they have been doing now for over a decade. We haven't seen CHF/EUR consistently above 1.2 since the depegging happened. This will be the first thing that will need to happen.

Investors (especially pension funds) still need exposure to real estate as *residential* real estate still yields something like +1% to +3% p.a. , which is infinitely more attractive than buying government debt with a negative yield of -1% p.a. @ 10 years.

Keep in mind that the Swiss Franc and Swiss real estate is in extremely high demand on a global level. In CH we even have the price-dampening effect of Lex Koller, whereby foregin nationals cannot just up and buy real estate to their heart's (wallet's) content. If this were lifted, I'd venture a guess that prices would shoot up significantly in some locations (i.e. Zurich, Geneva, Zug)
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Old 17.11.2019, 11:48
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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There is nothing stopping anyone renting a place that is more than 35% of income.



Sure we all know this, but the rule of thumb here is not more than 35% of your salary and landlords check this as it is a very good indicator whether you will be able to afford the rent or not
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Old 17.11.2019, 11:57
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Re: Low Low interest rates -housing bubble? - inevitable price correction?

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Not all landlords check. Also quite easy for rent to be far higher than 35% through loss of job.



What when you apply to rent the object.......but i'm sure you know best
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