Reference interest rate remains at 1.25 percent

The mortgage reference interest rate remains unchanged at 1.25 percent. This was announced by the Federal Housing Office (BWO) on Wednesday. The reference interest rate affects rents in Switzerland and is calculated quarterly based on the average mortgage interest rate. With the unchanged reference interest rate, there is no new entitlement to a reduction or increase in rent.

According to the federal government, the reference interest rate rose from 1.18 percent in the previous quarter to 1.33 percent at the end of December. Commercially rounded, the reference interest rate is still 1.25 percent. Another adjustment can only be made if the average interest rate falls below 1.125 percent or – currently more likely – rises to over 1.375 percent. The next deadline for a possible adjustment to the reference interest rate is the beginning of June 2023.

Increases are likely to come soon

The reference interest rate is the average interest rate for almost all mortgages in Switzerland. The mortgage reference interest rate has been 1.25 percent since the beginning of March 2020. That was when the last drop of a quarter percentage point took place. Before that, the reference interest rate was 1.5 percent.

The reference interest rate applies to the whole of Switzerland. One of the next adjustments is expected to see the interest rate rise. Several experts expect the first increase in 2023.

After that, the landlords could demand a rent increase from their tenants – but not all. If the reference interest rate rises to 1.5 percent, the rent can only be increased if the rental agreement is based on the reference interest rate of 1.25 percent.

Or to put it more simply: landlords who have not reduced their rents when the reference interest rate falls cannot increase them when the reference interest rate increases.

Landlords can increase the rent by three percent for each increase in the reference interest rate by a quarter of a percentage point. That’s what the regulation says. But the reference interest rate is not the price-driving factor when calculating the rent. Inflation can also be passed on at 40 percent. With inflation of 3 percent, the potential rent increase is 1.2 percent. The basis for any inflation-related rent adjustment is the last rate of inflation recorded in the rental agreement.

So far, the reference interest rate has only fallen

Forecasters assume that the reference interest rate will continue to rise in the coming years. For example, the Zürcher Kantonalbank (ZKB) expects “a total of five interest rate steps over the next five years”, as it announced at the end of 2022. In its analysis, the bank put the potential rent increases at a good 15 percent by 2027.

If the ZKB forecast comes true, the rent will rise by a total of 15 percent. Since the mortgage interest rate was replaced as the decisive interest rate by the smoothed reference interest rate, this has never risen, only ever fallen. When it was introduced in 2008, it was still 3.5 percent. (mg/abi/sat/fv)