A new study indicates that many pensioners in Switzerland may face unaffordable mortgages in the future. Discover the potential impact on retirees.
In a recent study, the financial landscape for homeowners in Switzerland, particularly those aged 50 to 65, reveals a troubling trend: a staggering 85 percent of this demographic faces significant challenges regarding the sustainable affordability of their mortgages as they approach retirement. The findings, published by Moneypark, indicate that only a mere one-third of these individuals possess adequate assets to effectively amortize their mortgage obligations.
Despite these alarming statistics, wealth management experts remain cautiously optimistic, asserting that forced sales of properties are unlikely to become commonplace. The study highlights that a scant 15 percent of homeowners within this age bracket receive pensions sufficiently robust to support ongoing mortgage payments post-retirement. For the remaining 85 percent, a portion of their mortgage must be repaid to realign their pension income with prevailing affordability standards. Alarmingly, only about half of those affected have the financial means to undertake the requisite additional amortizations, with an average household burden of nearly 300,000 Swiss francs looming large.
Regional disparities further complicate the situation. In French-speaking Switzerland, a mere 26 percent of individuals aged 50 to 65 have the necessary assets to meet these additional financial demands, in stark contrast to 38 percent in their German-speaking counterparts. Lukas Vogt, Managing Director of Moneypark, attributes this discrepancy to the disparate initial conditions associated with property acquisition. He notes that prospective buyers in the French-speaking regions must contend with an additional five percent in ancillary costs related to notary fees and land registry entries. Moreover, the surging real estate prices around Lake Geneva have exacerbated the financial strain on homeowners.
The root causes of this predicament are multifaceted. Vogt identifies the escalation of real estate prices as a primary catalyst, resulting in larger mortgages and consequently heightened interest expenses. Compounding this issue is the fact that individuals aged 50 to 65 today receive approximately 50 percent of their final salary as pension income, a stark decline from the 60 to 65 percent that was once the norm.
To navigate these challenges, prospective retirees are advised to engage in proactive financial planning. Current affordability guidelines stipulate that housing costs should not exceed one-third of household income. While this figure averages 27 percent for those aged 50 to 65, it balloons to an average of 50 percent upon retirement, thereby breaching the established threshold due to diminished pension income.
Pension experts advocate for early intervention in home financing strategies. For instance, if an individual recognizes the need to amortize 150,000 francs, achieving this savings goal over a 15-year horizon is considerably more feasible than attempting to do so within a mere three years.
The specter of forced sales looms large for those who fail to accumulate sufficient capital for amortization. However, both Vogt and his colleague Karl Flubacher assert that such scenarios are exceedingly rare in practice. They contend that even in instances where affordability criteria are not met, consistent payment of mortgage interest typically precludes banks from terminating mortgage agreements, thereby safeguarding homeowners from the dire consequences of forced sales. Flubacher emphasizes that such actions would inflict significant reputational damage upon financial institutions, further disincentivizing them from pursuing such measures.
