Prices for Home Ownership to Rise in 2025: Yield Properties Also More Expensive – What Buyers and Investors Need to Know Now

Overview: 2025 Marked by Rising Real Estate Prices

Home ownership will become even more expensive in 2025 – and yield properties (multi-family houses, residential and commercial buildings) are also increasing in price. The reasons lie in continued robust demand, ongoing supply shortages, higher construction and renovation costs, and an interest rate environment that, while still characterized by fluctuations, has become more predictable for many buyers and investors. For households, this means: careful affordability calculations, smart interest rate strategies (SARON mortgage vs. fixed-rate mortgage), and consistent offer comparisons. For investors, net returns are under pressure – the higher the purchase prices, the more important active management, conservative loan-to-value ratios, and realistic renovation budgets become.

Note on market stability: Recent announcements by the Swiss National Bank (e.g. regarding the design of an extended liquidity framework in February) underline that monetary policy and financial market infrastructure are aimed at stability. This creates planning security for financing, but does not resolve the fundamental supply shortage in the residential segment. Source: SNB communication of 19.02. (Framework for extended liquidity instrument).

Why Are Prices Rising?

Several factors interact:

• Demand: Continued immigration, smaller household sizes, urbanization trends, and the desire for higher residential quality are driving demand for ownership – especially in well-connected metropolitan areas and economically strong centers.
• Supply: Construction activity is slow to react. Building land is scarce, approval procedures are lengthy, and construction costs are high. In many regions, the influx of new condominiums and single-family homes fails to meet structural demand.
• Interest rates and financing: Mortgage rates have stabilized at a moderate level after significant movements in recent years, but still remain volatile. Financing remains affordable for buyers as long as their income covers the banks' calculation interest rates.
• Regulation and energy: Stricter efficiency standards and mandatory heating system replacements increase investment needs in existing properties. For yield properties, renovation stages affect net returns and capex planning.
• Rents: The rental reference interest rate and indexation via inflation can support rental income in the medium term. At the same time, vacancy risks in peripheral areas set upper limits.

Regional Differences Remain Significant

• Centers (Zurich, Geneva, Zug, Basel): Scarce supply meets high willingness to pay. Condominiums and single-family homes have above-average price levels; bidding procedures are not uncommon.
• Agglomerations and well-connected mid-level areas: Solid demand thanks to good public transport connections and relatively lower square meter prices. Popular with families and commuters.
• Periphery and rural areas: Mixed picture. Places with high quality of life and recreational value benefit, while structurally weaker regions struggle with higher vacancy risks.
• Tourist regions: Second-home restrictions and high demand for vacation use lead to price-sensitive micro-locations – quality and location are decisive.

Outlook 2025: Home Ownership and Yield Properties

• Home ownership: Continued scarce supply with stable to strong demand points to sustained price increases, especially in well-connected locations. Buyers are placing greater emphasis on energy efficiency, operating costs, and valuable micro-locations.
• Yield properties: Rising purchase prices are compressing gross and net returns. Investors focus on rental income dynamics, development potential (e.g. utilization reserves), and a robust financing framework. Transactions are active in good locations; more price-sensitive in peripheral locations.

Financing in Focus: SARON Mortgage, Fixed-Rate Mortgage and Mixed Strategies

• SARON mortgage: Variable financing linked to the money market rate. Advantages: Transparency, usually lower starting interest rate, often exemption from amortization at any time according to bank rules is more flexible. Risks: Interest changes pass through quickly; check budget discipline and interest caps (e.g. caps).
• Fixed-rate mortgage: Fixed term (e.g. 2–10 years) with fixed interest rate. Advantages: Planning security, protection from interest rate jumps. Disadvantages: Early repayment penalties on early closure, opportunity costs if interest rates fall.
• Combination/tranching strategy: Splitting into several maturities (e.g. part SARON, part 5-year fixed). Goal: Smooth interest risks, maintain flexibility, stagger refinancing risks.

Practical tip:

• Households with stable budgets and willingness for active monitoring often benefit from SARON components, secured by caps. Risk-averse households prioritize longer fixed maturities for core tranches (e.g. 5–7 years) and keep only a smaller tranche variable.
• Investors often use a maturity ladder to avoid repricing peaks and stabilize cash flow.

Affordability and Loan-to-Value: How Banks Calculate in Switzerland

• Loan-to-value (LTV): For owner-occupied properties, a maximum of 80% is typical. For yield properties, it is often more conservative (approx. 60–70%, depending on the bank).
• Affordability: Annual housing costs should generally not exceed about 33% of gross income. Banks calculate using a notional interest rate (often 4.5–5.0%), plus flat-rate incidental costs (about 1% of the property's value) and amortization.
• Amortization: The second mortgage (portion above 66% LTV) must generally be amortized within 15 years or by retirement. Indirect amortization via Pillar 3a can bring tax advantages.

Example 1: Owner-occupant, condominium for CHF 1,000,000

• Purchase price: CHF 1,000,000
• Equity: CHF 200,000 (20%)
• Mortgage: CHF 800,000 (of which 2nd mortgage CHF 133,333)
• Calculation interest: 5% on CHF 800,000 = CHF 40,000/year
• Maintenance/incidental costs (flat): 1% of 1,000,000 = CHF 10,000/year
• Amortization of 2nd mortgage: 133,333 / 15 ≈ CHF 8,889/year
• Total notional housing costs: approx. CHF 58,889/year (≈ CHF 4,907/month)
• Required gross income (33% rule): approx. CHF 178,000/year

Interpretation: Despite a moderate interest rate environment, buyers in 2025 must expect strict affordability assumptions. Check variants: higher equity, somewhat lower purchase price, or tranching the mortgage to reduce the effective starting rate.

Example 2: Yield property (small MFH) for CHF 3,000,000

• Net rental yield (NOI before interest/amortization, after management): CHF 120,000/year (4% net on purchase price, illustrative only)
• Loan-to-value 65%: Mortgage CHF 1,950,000
• Calculation interest: 5% → CHF 97,500/year
• Amortization: e.g. 1% of 1,950,000 = CHF 19,500/year (bank dependent)
• Maintenance/Capex reserve: 0.7% of 3,000,000 = CHF 21,000/year
• Total interest + amortization + maintenance: ≈ CHF 138,000/year
• Debt-service-coverage (DSCR = NOI / debt service): 120,000 / 117,000 (excluding maintenance) ≈ 1.03; incl. maintenance actually < 1.0

Result: With rising prices, affordability for yield properties is tight. Options: more equity (e.g. LTV ≤ 55–60%), higher rental yield potential, optimized capex planning or price reduction. Many institutions require a DSCR of ≥ 1.20–1.25; hurdles are harder to meet as purchase prices rise.

Returns Under Pressure: How Investors Secure Profitability

• Realistic rental income: Check rental agreements, indexation clauses, reference rate mechanisms and market rents. Simulate vacancy sensitivity (e.g. -5% rental income scenario).
• Capex planning: Heating, building envelope, roof, windows, electrical – factor in construction price escalation. Life cycle consideration over 10–15 years.
• Energy efficiency: Improvements increase rentability and lower operating costs. Use subsidy programs (cantonal/municipal) and tax deductions.
• Financing buffer: More conservative loan-to-value reduces interest rate risks. Staggering fixed maturities smooths repricing.
• Portfolio balance: Clear criteria for location, property quality, and tenant structure. Avoid cluster risks.

Don't Underestimate Purchase Incidental Costs and Taxes

• Notary and land registry: Fixed or percentage fees depending on the canton.
• Property transfer tax: Payable in several cantons (e.g. BE, FR, VS, NE, JU), not in others (e.g. ZH, ZG, SZ). The range is often 1–3% of the purchase price.
• Appraisal/bank fees: Dependent on the property.
• Capital gains tax on sale: Holding period and amount of gain are relevant; plan early.

Benchmark: Total incidental purchase costs are often 2–5% of the purchase price – budget conservatively.

Interest Rate Strategy 2025: Three Practical Setups

1) Security focus (owner-occupant): 70% as a 5–7-year fixed-rate mortgage, 30% SARON with cap. Advantage: predictability, yet flexibility. 2) Balanced (owner-occupant/investor): Thirds ladder (e.g. 3, 5, 8 years). Advantage: annual refinancing windows, risk balancing. 3) Opportunistic (experienced investors): High SARON proportion with a hedging instrument (cap/floor) and clear triggers for shifting into fixed tranches.

Check: Review early repayment penalties, termination periods, margin vs. index, minimum tranches and amortization rules precisely for each bank.

Practical To-dos for Buyers and Investors

• Check budget and affordability: Calculation with 4.5–5.0% interest, 1% maintenance, (for owner-occupancy) amortization of 2nd mortgage. Goal: housing costs ≤ 33% of gross income.
• Plan equity structure: Liquidity, pension (Pillar 2/3a), any gifts/loans. For yield properties, aim for a more conservative LTV (≤ 60–65%).
• Compare offers: Obtain quotes from bank, insurance, pension fund. Compare not just the nominal interest, but the overall package (margin, spreads, fees, flexibility).
• Property due diligence:
• Legal status regarding construction (zoning, utilization, any building right/hereditary building right)
• Building condition (reports, energy certificate/GEAK, renovation backlog)
• For condominiums: minutes, reserve funds, special regulations
• For yield: rental agreements, stepped rents, incidental cost statements, vacancies, tenant index
• Reserves: For maintenance and unforeseen costs plan annually 0.8–1.2% of the property's value (consider the condition of the property).
• Time scheduling: Clarify conditions precedent in the purchase contract (financing and approval reservations) and allow enough time for appraisal/financing commitments.

Keep Risks in Mind

• Interest rate risk: Sudden interest rate hikes directly affect high SARON shares. Consider caps or longer fixed maturities.
• Vacancy and rent risk: In peripheral locations and with above-average rents, the risk increases. Manage in line with the market.
• Regulation/energy: Stricter requirements can increase capex, but also bring efficiency gains. Plan early.
• Refinancing risk: Avoid concentration of many tranches on one date; stagger maturities.
• Valuation risk: In the event of price corrections, the loan-to-value ratio may rise; conservative financing provides protection.

Conclusion: Discipline Beats Timing

2025 remains a seller's market in many regions: Home ownership and yield properties are becoming more expensive, driven by scarcity and robust demand. Buyers and investors are well advised to set up solid financing: calculate affordability prudently, choose a conservative loan-to-value ratio, spread interest rate risks, and carefully review properties. Those who buy quality, keep energy and maintenance costs under control, and compare several financing offers will remain resilient even as prices rise – regardless of whether they choose a SARON mortgage, fixed-rate mortgage, or a mixed solution.

Transparency notice: As an economic signal, the SNB's policy of stability (e.g. communication on 19.02. regarding the design of an extended liquidity instrument) can support the functioning of the financial system. However, in real estate markets, the relationship between supply and demand remains the key price driver.