Home » Tenants breathe a sigh of relief – reference interest rate for rents remains stable – News

Tenants breathe a sigh of relief – reference interest rate for rents remains stable – News

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Tenants breathe a sigh of relief – reference interest rate for rents remains stable – News

After two increases in a row, the reference interest rate for apartment rents remains stable this time. The Federal Housing Office (BWO) left the reference mortgage interest rate at 1.75 percent, as stated in a statement Communiqué announced. For many tenants, this means a breather. According to most economists, there will probably be no further increase in the current year.

Last year, the reference interest rate climbed in two steps from 1.25 to 1.75 percent. Some landlords took this as an opportunity to increase rents significantly – in some cases by over 10 percent.

When determining the reference rate, the BWO relies on the quarterly average interest rate on domestic mortgage claims from Swiss banks. According to the BWO, this increased from 1.69 to 1.72 percent compared to the previous quarter.

Economists surveyed by the AWP news agency unanimously did not expect any increase. There has recently been an easing in mortgage interest rates, on which the reference interest rate is based. The background was falling inflation rates and hopes that the National Bank would soon cut interest rates.

Every new mortgage taken out generally becomes more expensive, which pushes up the average interest rate. However, the distance to the next threshold of 1,875 percent is still large. Only when this value is exceeded will the next increase occur, as the reference interest rate is rounded up or down to the nearest quarter percent value during the calculation.

Reference interest rate? Average interest rate?

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A reference interest rate is an average interest rate at which interest is charged on mortgages in Switzerland. Since landlords often have mortgages on their properties with a bank, they are allowed to raise the rent slightly if the reference interest rate increases, for example.

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The reference interest rate is calculated as follows: In a first step, the average interest rate of all domestic mortgages that the banks have granted is calculated. The total amount of mortgages included in the calculation is 1,132 billion francs. The outstanding mortgages have different terms and different interest rates. An average is calculated from this and the reference interest rate is then the value rounded to a quarter of a percent.

No further increases expected

At the beginning of June 2023, the reference interest rate rose for the first time in its history. This led to higher rents last fall. If the reference interest rate increases by 0.25 percentage points, landlords are allowed to increase the rent by 3.0 percent – provided they have passed on previous reductions. They are also allowed to pass on 40 percent of the accumulated inflation and “general cost increases”.

A claim for an increase based on the reference interest rate only exists if the current rent is still based on the previous reference interest rate from last June, which was 1.5 percent at the time. If it is based on the older one of 1.25 percent, this will result in an even greater entitlement to an increase.

As a reminder: When it was introduced in 2008, the rate was 3.5 percent, after which it gradually decreased.

According to most economists, there will probably be no further increase this year. Because they expect key interest rate cuts from the Swiss National Bank (SNB). These would dampen the average increase in mortgage interest rates.

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