Reference interest rate for rents remains stable
Published: Friday, Mar 1st 2024, 08:10
Updated At: Monday, Jun 3rd 2024, 12:30
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Tenants in Switzerland can breathe a sigh of relief. They are not facing an automatic rent increase. This is because the reference interest rate for residential rents remains unchanged once again.
The mortgage reference interest rate published by the Federal Housing Office (BWO) remained at 1.75 percent in June, as was reported in a press release on Monday. The breather in rents is thus continuing.
Last year, the reference interest rate climbed in two steps from 1.25% to 1.75%. Some landlords took this as an opportunity to increase rents significantly - in some cases by over 10 percent.
In principle, landlords are allowed to increase the rent by 3.0 percent if the reference interest rate rises by 0.25 percentage points - provided they have passed on previous reductions. They are also allowed to pass on 40 percent of the accumulated inflation and "general cost increases".
Average value unchanged
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 now remained at the previous quarter's level of 1.72%.
The reference interest rate is rounded up or down to the nearest quarter of a percent. The distance to the next threshold value of 1.87% is therefore still very large. Only when this value is exceeded will the next increase take place. On the other hand, there would only be a reduction at an average interest rate of 1.63%.
Inert system
Experts had not expected a change in the reference interest rate in advance. This is because mortgage interest rates, on the basis of which the reference interest rate is calculated, have recently eased. This was due to falling inflation rates and the first interest rate cut by the Swiss National Bank.
In a recent study, experts from the major bank UBS even came to the conclusion that the reference interest rate is not expected to rise at the next assessments in September and December. However, despite the easing of market interest rates, a fall is not yet within reach either. The reason for this is the inertia of the average interest rate. According to the bank's experts, this is likely to move sideways in the coming quarters.
Lower interest rate unlikely
However, other scenarios cannot be completely ruled out, according to the UBS study. However, the prerequisite for an increase in the reference interest rate to 2 percent by June 2025 would be a resurgence in inflation.
Experts believe that the probability of the reference interest rate falling to 1.50% within a year is even lower. Such a fall would be conceivable if the SNB were to lower the key interest rate to 0.25% due to a sharp fall in inflation and a significant economic slowdown.
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