There are many excellent reasons to spend a lot of your money on housing. However, in the current environment, prospective tenants are well advised to draw up a budget plan first. They need to know how much of their salary is actually left over after deducting all costs, such as household expenses, insurance premiums and taxes.
- First calculate, then rent!
- Estimate the fixed costs
- Calculate possible rent
- Procedure in practice
- Housing and wages in Switzerland
- Rent or buy
- Example budget
Many flat-hunters have experienced this or a similar problem: they’ve fallen in love with their dream flat at first sight – comfortable, spacious and located at the best address in the neighbourhood. If only the rent wasn’t so high!
Therefore, the tried and tested rule applies: anyone searching for a flat should first work out their maximum affordable rent. Living in beautiful surroundings is ultimately only enjoyable if the financial side is also under control – for the long term. An expensive car repair or an unplanned dental bill should not become a disaster! Each tenant must carefully strike the right balance between their disposable income and housing costs (including all ancillary costs).
First calculate, then rent!
If we were to ask around, we would soon discover that very few people have a detailed understanding of their household budget. In addition, some expenses are regular, while others occur irregularly or sporadically. Creating a personal budget will reveal exactly how much money is available to cover the rent payments. Your income (as per your salary statement) and any other income from pensions, social insurance, child maintenance, etc. can be classified as regular income – it’s important to only include the actual, fixed costs in your calculation. Any bonus payments received in the previous year may not be included in your income calculation for the current year. It’s also important not to produce a “best-case” budget – for example, by factoring in an eagerly hoped-for promotion and pay rise.
Estimate the fixed costs
When it comes to your monthly outgoings, these costs vary enormously across Switzerland and depend on your living arrangements as well as your age and lifestyle. Furthermore, when it comes to taxes, local rents and health insurance, it makes a big difference whether you live in Appenzell, the Mittelland or Geneva. While your budget may be enough for a three or four-room flat in the countryside, you will find that you can only afford a small apartment in Zurich or Geneva.
When you put your finances through their paces, the following costs are usually important:
- Household bills, groceries, eating out, etc.
- Mobile phone, communication, TV licence fee, internet
- Subscriptions and media (streaming, magazines, club memberships, etc.)
- Taxes (federal, cantonal, municipal)
- Health insurance and other insurance
- Health, fitness, dentist
- Leisure, sport, holidays
- Vehicle, traffic, mobility, public transport season tickets
- Expenditure on children (depending on their age and living arrangements)
Rental fees: No more than one third of income
According to the established rule of thumb in Switzerland, a tenant household should not spend more than one third of its gross disposable income on rent. The calculation itself is very simple: let’s take Simon and Elisabeth Fox as an example. They have a combined gross household income of 135,000 Swiss francs: Maximum rent (including service charges): 135,000 / 3 = 45,000 (=3,750 francs, including service charges).
At first glance, this rough estimate of their maximum affordable rent appears pretty solid. However, it’s important to work through all income and regular costs when calculating one’s budget. For example, if the couple has one or more children and needs to cover the cost of childcare, the calculation is rather different. Indeed, these days many families are well advised to prioritise more affordable housing.
Truth be told, private individuals are generally more likely to underestimate their actual living costs than vice versa. According to the “one-third rule”, households should only go to the upper limit of their rental budget if they can rely on a secure income and expect career advancement opportunities. Generally speaking, families with two or three children should aim a little lower when it comes to their accommodation expenses (for example, by allocating only 20 or 25 per cent of their gross income). Particular caution should be exercised by people who have debts or other fixed obligations (maintenance payments, care costs, long-term leasing instalments, etc.).
Actual practice: Who will get the flat?
In Switzerland, the aforementioned rule of thumb actually plays a central role when landlords choose new tenants. This is confirmed by many large letting agencies – for example, a spokesperson for Wincasa said the following:
The rule of thumb that rent should not be more than one third of gross income is also common practice in our company.
Exceptions, according to Wincasa, are possible under certain conditions, for example in the case of two-income households. However, in the case of couples (for example), their joint income from gainful employment is generally counted as one income. When selecting tenants, landlords will also check each applicant’s credit rating and/or request a corresponding extract from the debt-collection register.
Unless an applicant’s record is “spotless”, they may need to come up with a good explanation; in practice, however, it is the context that really matters. Even reputable and extremely reliable tenants may have “blotted their copybook” at one time or another – for example, in the event of a legal dispute.
According to Wincasa, additional paperwork such as salary statements or other supporting documents regarding the applicant’s financial situation are not required. “However, it is standard practice for references to be checked with the respective employers and the previous landlord,” explained the Wincasa spokesperson.
And if an interested party submits an application online, the same information is usually required. A spokesperson for the real-estate services provider Privera said: “When applying, an officially recognised identity card and an extract from the debt-collection register must be submitted.” This extract must not be older than three months, according to the spokesperson. The online form requires detailed information about the applicant’s current income.
Housing and wages in Switzerland
Since the outbreak of the pandemic last year, many letting agencies now scrutinise the affordability of rental costs more closely than before. After all, it can be expected that many employees will either be put on short-time work or even find themselves living off unemployment benefits at some point in the near future. A glance at the statistics reveals that housing costs for tenants have typically risen at least as much as wages during the last 10 to 20 years.
When searching for a flat, many people quickly get the impression that prices are currently sky high. Indeed, housing is generally in short supply, although this varies somewhat from region to region. And there is no sign of things cooling off in Switzerland’s major economic centres. According to the official figures from the Swiss Federal Statistical Office (BfS), the average spend on rent or housing accounts for about 20 per cent of income. However, this average amount also includes the relatively low rents in rural areas or in older buildings. In Switzerland, it is also not uncommon for some households to “inherit” low housing costs by simply staying put for many years.
In many cases, rents scarcely move at all until there is a change of tenant, with prices rising each time a flat is newly advertised. According to current case law, the landlord may then be guided by the customary rents in the locality and neighbourhood. In conclusion, in newly advertised flats, the ratio between rent and income often looks less favourable than in many older buildings.
Rent or buy?
In a nutshell: if you hope to get a good deal when looking for a flat, you should pay attention to affordability. The stronger your “argument” based on your income and budget, the better your chances will be. However, there is another good reason to create a detailed budget – with the current, low mortgage interest rates, it makes sense to consider home ownership as an alternative. Given the comparatively high rents, you may be able to afford to buy your own home with the same available budget.
Budget advice centres and budget templates: http://www.budgetberatung.ch/Budgetbeispiele.19.0.html
|Example budget: Family with 1 child||CHF|
|Net income per month||6’500|
|Household contents and personal liability insurance||40|
|Mobile phone, internet, TV, Serafe||160|
|Household, food, beverages||1’050|
|Woman (clothes, hairdresser, leisure, spending money)||250|
|Man (clothes, hairdresser, leisure, spending money)||250|
|Deductible, franchise health insurance||90|
|Joint leisure time, school, camp||120|
|Total fixed expenditure||5’740|
|Typically used for: holidays, further education, childcare, purchases, savings, pension provision, etc.||760|