Rising real estate prices are causing increasing problems for new buyers. Forty-eight percent now resort to pension fund assets to fulfill their dream of home ownership. This could backfire, as the average early withdrawal of CHF 115,000 from pension funds creates a pension gap of CHF 500 per month.

Real estate prices are rising and rising, while purchasing power is stagnating. In the last five years alone, real estate prices have increased by around 20%, while purchasing power has been slightly negative over the same period. This makes it correspondingly difficult for new buyers to afford their own home. In addition to 20% equity, the affordability of the mortgage must also be ensured, and this is increasingly becoming a problem. An average single-family home in Switzerland costs around CHF 1,350,000 and requires at least CHF 270,000 in equity and CHF 240,000 in household income. This is well above the Swiss median income of just under CHF 160,000 for a household with children. As a result, first-time buyers are increasingly using their pension funds to increase their equity and reduce the annual income required for a mortgage. This is made possible by the home ownership promotion scheme (WEF), which allows pension funds from the second pillar (pension fund) to be used to purchase owner-occupied residential property.

Retirement savings are increasingly being transferred to home ownership

Retirement savings are increasingly being used to buy homes, which can backfire. An analysis of nearly 7,500 purchase transactions from the last five years shows that 48% of new buyers use their pension fund assets to purchase their own home. Around 30% of buyers have to withdraw at least part of their pension fund assets. These buyers take an average of around CHF 115,000 from their pension fund to finance their dream property. This gives them a median equity of around CHF 360,000 and a household income of around CHF 210,000. With the early withdrawal from the pension fund, an average of just under 70% of the second pillar is invested in the home, leaving a pension gap of CHF 500 per month (at a current average conversion rate of 5.3%).

Since new buyers are on average 44 years old when they purchase residential property, they have around 20 years to close the gap in their pension fund. With an annual savings contribution of around CHF 5,000, they can not only close the gap, but also save around CHF 1,500 in taxes each year (at a marginal tax rate of 30%). "If they don't do this, they risk having to sell their home in old age due to a lack of affordability," says Lukas Vogt, CEO of MoneyPark.

Pledging as a frequently used alternative to withdrawal

In addition to the 30% of new buyers who withdraw pension fund assets to purchase residential property, a further 18% opt to pledge their pension assets. In this case, the funds remain in the pension fund and serve as collateral for the mortgage lender. "This is particularly possible when it is not income that is the limiting factor, but equity," explains Lukas Vogt. In this case, there is no pension gap, and the funds continue to earn interest and remain secure. If the value of the property continues to rise after purchase, it may even be that the equity share is so large by the time of retirement that pledging is no longer necessary. Only with mandatory amortization is the mortgage likely to become unaffordable for the vast majority of new buyers in old age.

Without home ownership subsidies (WEF), the dream of owning a home would be even less achievable for young people. At the same time, there is a risk of overextending oneself financially due to a lack of foresight. After all, by the time one retires at the latest, the mortgage must be affordable on a reduced pension income. And this is where the next challenge awaits today's new buyers. "Until about 15 years ago, the rule was that mandatory mortgage amortization of two-thirds of the property value ensured affordability with reduced retirement income. Anyone who buys a property at the age of 40 today and makes the mandatory amortization payments is likely to have an affordability ratio of around 50% at the age of 65 due to falling pensions and rising property prices, and will therefore be required to reduce the mortgage to around half of the original purchase price," calculates Lukas Vogt. In this example, that would be an additional CHF 225,000, which would have to be repaid in the form of voluntary amortization.

Optimized financial and pension planning ensures long-term affordability

MoneyPark therefore advises new buyers to pay the annual maximum into the third pillar throughout the entire ownership phase, in addition to the mandatory amortization (indirectly via pillar 3a) and the repayment of the pension funds withdrawn, and to invest the tax savings (through pension fund and 3a purchases) in their free assets. "As a rule of thumb, 2-2.5% of the purchase price should be invested annually in the various pension funds and in free savings in order to live financially carefree for the entire duration of ownership of the property," says Lukas Vogt.

How much should be paid into which fund in each individual case is part of an individual, early, and sound financial and pension planning process, which is recommended for all property owners. In the example above, the savings amount to around CHF 1,100,000 by retirement. Around a third of this comes from investing pension and savings funds in stocks and bonds. "It is important to note that new buyers who choose not to invest their savings and pension funds in stocks and bonds will have to save around one and a half times as much in order to have the same financial situation when they retire," warns Lukas Vogt.