The most important questions and answers about the reference interest rate
Published: Friday, Dec 1st 2023, 08:30
Updated At: Friday, Dec 1st 2023, 08:30
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Switzerland is once again facing a broad-based increase in rents - due to the increase in the reference interest rate and high inflation. Here are the most important questions and answers.
QUESTION: How much will the rent increase after the reference interest rate was raised from 1.50 to 1.75 percent on (today's) Friday?
ANSWER: After an increase of 0.25 percentage points, landlords can raise rents by 3 percent. However, in the case of long-term tenancies, the prerequisite for this is that the previous reductions have also been passed on. It may therefore be worth checking the rent basis in the current rental agreement.
QUESTION: Why is it now going up by 3 percent? When the reference interest rate was lowered, equally large interest rate steps "only" triggered claims for cuts of 2.91 percent each.
ANSWER: The Federal Supreme Court has decided this. The reasoning was that a rent of CHF 1,000, for example, that is increased by 3 percent amounts to CHF 1,030. If the mortgage rate falls again by 0.25 percentage points and the tenant demands a rent reduction, then the rent should be CHF 1,000 again. And to get from 1030 back to 1000, you only need 2.91 percent.
QUESTION: How is the reference interest rate calculated?
ANSWER: This is done by the Swiss National Bank on behalf of the Federal Office for Housing (FHO). All banks whose domestic mortgage claims denominated in Swiss francs exceed the total amount of CHF 300 million are obliged to report the data on a quarterly basis. The current system has been in force since September 2008. Since then, a uniform reference interest rate has applied throughout Switzerland for rent adjustments due to changes in the mortgage interest rate. It replaced the interest rate for variable mortgages that used to apply in the cantons.
QUESTION: In addition to the reference interest rate, landlords are also allowed to pass on inflationary effects to tenants. How does this work?
ANSWER: 40 percent of the accumulated inflation may be passed on. For the exact calculation, you need to look at the statistics, specifically the national consumer price index. The inflation relevant to the rent is calculated on the basis of the change in this index since the last rent adjustment. It is important that the correct months and the tables with the correct index basis are used.
QUESTION: Landlords are also allowed to pass on "general cost increases" to tenants. How does this work?
ANSWER: This is where it definitely gets complicated. According to the Federal Supreme Court, the landlord would have to prove this increase in costs. However, according to the BWO, many arbitration authorities apply a flat rate to simplify the calculation. However, these flat rates vary and are sometimes graduated depending on the age of the property. According to the Homeowners' Association, flat rates of 0.5 to 1 percent per year are widely used in practice. In the event of a dispute, court practice requires that the increase in these costs must be substantiated by concrete evidence.
QUESTION: When does the higher rent apply?
ANSWER: In terms of timing, most landlords are likely to send the letters immediately after the publication of the reference interest rate so that the increase applies as quickly as possible - specifically to the next possible termination date.
QUESTION: Property management companies play an important role in the rental housing market. Do they decide independently how much to increase?
ANSWER: All the property management companies we asked emphasized that this was not the case. Whether there is a rent adjustment due to the reference interest rate adjustment is at the discretion of the owners, according to Wincasa, for example. There is no uniform implementation. However, there has been a lively exchange with the owners for months.
QUESTION: Does all this concern the tenants of cooperative apartments?
ANSWER: As a rule, cooperatives apply the cost rent, which has to take into account the actual mortgage interest rate and not the reference interest rate. In some cases, however, they still rely on it. A blanket passing on of inflation is not an issue for cooperatives, as only actual cost increases, such as for maintenance, may be passed on in the case of cost rent.
QUESTION: What should I do if I fear that the rent increase is too high?
ANSWER: In such cases, the Tenants' Association advises tenants to submit a request for conciliation to the conciliation authority within 30 days of receiving notification of the increase. Before doing so, it may be worth taking a look at the rent calculator developed by the association.
QUESTION: Is the system still up to date?
ANSWER: There are different opinions on this. Some consider it to be established, recognized by all sides and comprehensible. However, there is also criticism: some stakeholders would like a simpler system. One example is the current practice for commercial leases, where the rent is adjusted annually in line with the national consumer price index. Over the past 25 years, numerous attempts have been made to revise tenancy law and various models have been discussed. However, nothing has changed.
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