Reference interest rate rises again
Published: Friday, Dec 1st 2023, 08:30
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The reference interest rate for residential rents has risen for the second time this year. The Federal Housing Office (BWO) is increasing the mortgage reference interest rate from 1.50 to 1.75 percent, according to a statement on Friday. Many rents are likely to rise again.
When determining the reference rate, the BWO uses the quarterly average interest rate for domestic mortgage loans from Swiss banks. According to the BWO, this has risen from 1.59% to 1.69% compared to the previous quarter. This means that it is now back above the threshold for the next interest rate hike.
The main reason for the rise in rents is the mechanism of the mortgage reference interest rate. Because mortgage rates have fallen from their historic lows in the course of the interest rate turnaround, the reference interest rate has now also risen. And because this is rounded up or down to the nearest quarter of a percent in the calculation, it has now risen to 1.75 percent.
At the beginning of June this year, the reference interest rate rose for the first time in its history. This resulted in higher rents in the fall of this year. And now the next rent shock is already imminent. Specifically, the next round of rent increases can be expected in spring 2024 after the reference interest rate increase that has now been decided.
3 percent more rent
This is because if the reference interest rate is increased by 0.25 percentage points, landlords may increase the rent by 3.0% - provided they have passed on the previous reductions. Specifically, there is a right to an increase if the current rent is based on the previous reference interest rate of 1.5 percent, which has been in force since June 2, 2023. If it is still based on the older rate of 1.25 percent, there is an even greater entitlement to an increase.
As a reminder, the rate was 3.5 percent when it was introduced in 2008, after which it gradually fell. According to an estimate by Zürcher Kantonalbank, around 60 percent of all tenancies are currently based on the current reference interest rate. The proportion of those affected has therefore risen by around 10 percentage points since the last increase.
After all, analysts surveyed by the news agency AWP agree that this is likely to be the last increase in the reference interest rate in the medium term. They do not expect any further rent increases in 2024 at least.
©Keystone/SDA
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