Whether now or in three months – the reference interest rate will fall
Published: Wednesday, Nov 27th 2024, 11:10
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Tenants in Switzerland are facing rent cuts. However, it remains to be seen whether the decisive reference interest rate will fall this year. However, it will happen in March at the latest. After that, nothing is likely to happen for a long time.
Next Monday, the Federal Housing Office (BWO) will communicate the mortgage reference interest rate. Economists surveyed by AWP agree that the quarterly average interest rate for mortgages in Switzerland is likely to fall again.
This is because the Swiss National Bank (SNB) has recently lowered key interest rates three times in a row, most recently in September. This has also made money market and fixed-rate mortgages cheaper again.
On the razor's edge
In order for tenants to benefit from a reduction, the average interest rate would now have to fall to 1.62%, down from the most recently published 1.67%. Only then would the reference interest rate fall to 1.5 percent.
According to UBS economist Fabian Waltert's calculations, it remains to be seen whether the recent decline will be sufficient to lower the reference interest rate as early as December. According to his model calculations, "this is like tossing a coin".
Fredy Hasenmaile from Bank Raiffeisen has a similar view: "It is literally a knife-edge decision". But postponed is not canceled: both experts agree that the lowering of the reference interest rate will become a reality by March at the latest.
Claim if necessary
This is good news for tenants. This is because if the reference interest rate is reduced by 0.25 percentage points, landlords must reduce the rent by 2.9 percent - provided they have also implemented the previous increases. However, they are allowed to offset 40 percent of the accumulated inflation and "general cost increases".
However, tenants cannot expect the landlord to charge less rent of their own accord if the reference interest rate falls. If he does not do this, a rent reduction must be applied for - otherwise the rent will remain the same.
Prior to this, the reference interest rate had climbed twice within a short space of time in 2023. This was because the SNB abandoned its negative interest rates in the fall of 2022 and countered inflation with significant key interest rate hikes.
Some landlords took this as an opportunity to increase rents significantly - in some cases by more than 10%. Higher residential rents were also a key driver of inflation in this country - although the increase was offset by the fall in other prices.
No immediate further reduction
Since March, however, key interest rates have been cut again by three quarters of a percentage point - and a further reduction of half a percent is expected. However, anyone hoping for a further fall in the reference interest rate and thus even lower rents is likely to be disappointed.
"In this scenario, the reference interest rate is likely to move sideways at 1.5 percent until the end of 2026," says UBS economist Waltert. The reason: the average interest rate on which the mortgage reference interest rate is based reacts only slowly to changes in market interest rates.
This is because quite a few of the fixed-rate mortgages used for the calculation were concluded during the negative interest rate phase. And they were usually extended at a higher interest rate. In Waltert's opinion, this will prevent the average interest rate from falling more sharply.
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