Real estate: what if we had to sell in retirement?

Much is written about real estate prices and the hypothetical evolution of interest rates.

We talk less about the conditions for granting a real estate loan, which are very restrictive in Switzerland, which explain why in urban areas, not many of us can become owners.

There is one point on which we read little: what can happen when you stop all gainful paid activity to retire? This is a delicate subject, which we do not necessarily want to publicize.

At Impact Financial Engineering, we do not claim to have the skills to comment on the future evolution of real estate prices or even interest rates. But one thing is certain: rates have increased significantly with the tightening of the SNB's monetary policy. And sooner or later it will affect the budget of owners and even more painfully that of retirees.

In a few lines, how does it work?

1. At the time of purchase

The rules are in most cases well known:

1. The banking establishment can grant you a mortgage loan which can generally go up to 80% of the value of the property in the case of a main residence (or less if the property is considered a luxury item). By value of the property, we mean the value estimated by the pledgee, which is often below the actual purchase price.
2. The part of the loan exceeding 2/3 of the value of the property estimated by the bank must be amortized within a period to be defined, but at the latest at ordinary retirement age.
3. Real estate (theoretical) charges must not exceed 1/3 of the borrower's gross earned income.
4. A contribution of equity equivalent to 20% is required, in addition to acquisition costs (notary, RF, etc.). Only 10% of equity can come from professional pension provision

Many of us think that if all these conditions are met and the deal is done, we become happy owners for life.

Except that the situation from an income perspective in principle changes significantly upon retirement!

            2. Retired

Disposable income is decreasing. The bank may have to reconsider the conditions of the loan then granted. In practice, this will usually be the case during a mortgage renewal or when requesting a credit increase.

And this is when the theoretical load can be lacking. What could be the consequences?

1. A partial refund request
2. Increase guarantees in favor of the bank
3. A larger line of credit in favor of the establishment (increased risk)
4. Etc

The lucky ones will be able to cope with these different requests.

But many of us find ourselves in an embarrassing situation:

1. We allocate part of retirement benefits to partial repayment of credit, further reducing our availability to finance the lifestyle in retirement, or worse
2. We have to sell the property, move, relocate, etc.

And all this obviously happens at the least opportune moment: in retirement, when our income is decreasing and we are already thinking about the lifestyle that we will not be able to afford.

The good news? Anything that can happen is avoidable if you anticipate it! At Impact Financial Engineering, our specialists inform you and support you in planning your retirement, avoiding any pitfalls as mentioned above.

Planning means knowing where you are going and how you are going there. It means retiring peacefully, without unpleasant surprises, having optimized your situation from a tax perspective as far as possible in advance.

Don't wait any longer. Come meet us. At Impact Financial Engineering, you will be received warmly, simply and receive professional, innovative and independent advice!