Increase in the reference interest rate: what does this mean for property owners, management and tenants?

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The anticipated increase in the reference interest rate, which is important for the calculation of current rents, may have equally far-reaching effects on property owners, landlords, property management companies and tenants.


An increase will lead to an increase in rents and thus also increase the burden on tenants. On the other hand, this will enable landlords to use their right to increase rents as a measure against rising costs or falling yields. The administration must also adapt to these changes and come to terms with the new regulations. What does this mean for the various players?

Mortgage reference interest rate

Current reference interest rate: 1.25%, valid since 03.03.2020, unchanged from 02.03.2023
Quelle: Federal Housing Office

The mortgage reference interest rate is the quarterly interest rate charged on all open home loans in the country. It reflects the interest costs that landlords pay for their mortgage loans. If the reference interest rate rises, the law allows rents to be increased by up to 3 percent. In addition, landlords can claim up to 40 percent of inflation, which can lead to a further increase in rents.

Increases in the reference interest rate expected – forecast (in %), Switzerland

Real estate owners and landlords

The tense market situation with rising financing costs, ancillary costs, inflation or upcoming renovations to comply with the energy balance put a strain on landlords’ budgets. In the event of a first reference interest rate step, landlords have the option of increasing rents if the current rental agreements are based on a reference interest rate of 1.25 percent.
This is the case if the tenants have recently concluded the rental agreement or have requested a rent reduction after the last reference interest rate step.
However, according to an analysis of rental price index data from the Federal Statistical Office between 2016 and 2022, many tenants did not make use of this right. On average, less than a third of all rental agreements across Switzerland were adjusted downwards between two reference interest rate cuts.

In times of high vacancy rates, many landlords have waived increases. However, the rental housing situation has worsened due to the market situation, rising costs, falling vacancy rates and rising asking rents, which means that many landlords will implement rent increases in order to offset costs and increase the profitability of their investments.



Tenants of residential real estate

Whether tenants will be affected by a possible increase in the reference interest rate depends on various factors, such as the frequency of past rent adjustments, rent reduction requests, the frequency of relocations and landlord behavior. Many landlords often waive an increase as a gesture of goodwill and for the common good.

According to estimates by Zürcher Kantonalbank, the current reference interest rate of 1.25 percent only applies to around half of all rental apartments. Nevertheless, the mortgage reference interest rate could continue to rise in the coming years, which will increase the cost of mortgage loans and may also have an impact on rental prices. The average interest rate of all current mortgages reacts with a time lag to the development of the interest rate market.

Conclusion

The tense market situation remains unchanged. The uncertainty among tenants due to potentially rising rents is omnipresent. Administrations should be well prepared for the potential increase. In times of housing shortages, rising reference interest rates allow landlords to at least partially compensate for the higher costs of their properties by increasing rents, thereby curbing the loss in value and in turn stabilizing the market. It remains an exciting time.

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Sources: Federal Housing Office BWO, Züricher Kantonalbank.


All data are without guarantee. The information on these Internet pages has been carefully researched. Nevertheless, no liability can be assumed for the accuracy of the information provided.

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