Next cost boost for tenants imminent
Published: Friday, Dec 1st 2023, 10:20
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These are not easy times for Switzerland as a tenant nation: the so-called mortgage reference interest rate has risen again. The result is likely to be a further increase in rents across the board in Switzerland.
Specifically, the next round of rent increases is expected in spring 2024. This does not bode well for the wallets of many people. In addition to inflation, higher energy costs and, above all, the surge in health insurance costs, wallets will be emptied even further in the new year.
The main reason for the rise in rents is the mechanism of the Hypo reference interest rate. Because mortgage rates have fallen from their historic lows in the course of the interest rate turnaround, the reference interest rate also rose on Friday (today) - from 1.50 to 1.75 percent.
When determining the reference rate, the Federal Housing Office (FHA) 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 - rounded up - it is now back above the threshold for an interest rate hike.
Increase of 3 percent
Following the increase of 0.25 percentage points, landlords can now increase 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.
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Zürcher Kantonalbank, around 60 percent of all tenancies are currently based on the reference interest rate, which is no longer valid. The proportion of those affected has therefore risen by around 10 percentage points since the last increase.
In addition to the reference interest rate, landlords are also allowed to pass on 40 percent of accumulated inflation and "general cost increases". Nevertheless, inflation has eased somewhat in recent months. Most recently, it amounted to 1.7 percent in October and was thus clearly below the important threshold of 2.0 percent, which the Swiss National Bank considers to be the limit for price stability. Nevertheless, rents are likely to rise by more than "just" 3 percent again for many of those affected.
Probably the last increase in the short term
After all, this is likely to be the last increase in the reference interest rate in the short term - analysts surveyed by the news agency AWP agree on this. They do not expect any further rent increases in 2024 at least.
After that, however, the picture for tenants is less rosy according to a current forecast by ZKB. According to this, the reference interest rate is likely to rise to 2.50 percent by 2028. This would mean another three rounds of rent increases in 2025, 2026 and 2027.
In other scenarios, ZKB is even forecasting an increase to as low as 2.75 or 2.25 percent. "The future development of the reference interest rate depends on macroeconomic developments and is subject to uncertainty," said ZKB chief economist David Marmet, explaining the range of forecasts.
Meanwhile, Raiffeisen chief economist Fredy Hasenmaile expects the reference interest rate to pause for several years, probably until 2027. As he does not expect the SNB to raise the key interest rate any further, the average interest rate on which the reference rate is based is likely to rise only slowly.
Political demands
The Federal Council is aware of the problem of rising interest rates for consumers. It therefore wants to take measures that can be implemented in the short term to cushion the rise in rents, as it recently announced.
Corresponding demands on the national government have come and continue to come primarily from the political left. The Swiss Federation of Trade Unions (SGB), for example, described the burden placed on households by ever-increasing rents as unbearable.
The Homeowners' Association (HEV) takes a completely different view, which is hardly surprising: demands for government intervention to unilaterally prohibit the adjustment of rents to landlords' increased interest costs are completely misguided, the HEV wrote in a press release. Such a decoupling at the present time would lead to an unjustified redistribution at the expense of landlords.
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