Reference interest rate remains at 1.5% – what does this mean for tenants and landlords?

Although the interest rate situation is easing, rents are continuing to rise in many regions. The reference interest rate under tenancy law, which is decisive for rent adjustments, will remain at 1.5% as of June 3, 2025. But what does this mean in concrete terms for tenancies – and what leeway do tenants and landlords have?

Stable reference interest rate despite falling mortgage rates

The reference interest rate is published quarterly by the Federal Housing Office (BWO) and is based on the volume-weighted average interest rate of all domestic mortgage claims. As at March 31, 2025, this was 1.44% – too low to reach the threshold for a reduction. According to Art. 12a VMWG, a change is only made if the average interest rate falls below 1.375% or exceeds 1.625%.

For tenants, this means that the rate will remain at 1.5% for the time being. The next opportunity for an adjustment will be on September 1, 2025.

Reference interest rate: basis for rent reduction or increase

The reference interest rate serves as a central point of reference in rent negotiations. For example, if a rental agreement was concluded in 2022 when the reference interest rate was still 1.25%, there is no entitlement to a reduction if the interest rate remains the same or rises. Conversely, for contracts with an interest rate base of 1.75% or higher (e.g. from 2024), there is a theoretical entitlement to a rent reduction of around 3% – provided there are no counter-arguments such as inflation or maintenance.

Landlords also have to react when the reference interest rate falls: If the rate falls further – to 1.25% in September 2025, for example – the administrative burden will increase due to increased requests for reductions. In addition, calculated yields come under pressure if there are no indexed or investment-based adjustment mechanisms in place.

Why rents are rising despite stable interest rates

Rents continue to rise in many Swiss cities – even though the reference interest rate remains unchanged. The reasons for this are:

• Indexation: In the case of index-linked rental agreements, the landlord can pass on the inflation rate(LIK) annually.
• Value-enhancing investments: Modernizations, energy-efficient renovations or the installation of lifts may be passed on proportionately to the rent.
• Cost increases: Increased energy prices, rising operating costs or higher insurance premiums are considered permissible reasons for an increase.
  

According to recent surveys, urban centers such as Zurich, Geneva and Lausanne in particular have recorded rent increases of between 2 and 4% over the last twelve months. This is despite the unchanged interest rate policy. The main driver of this development is the high demand for residential space in urban areas – coupled with a low volume of new construction and record-low vacancy rates. In Zurich, the vacancy rate is currently just 0.07%, in Geneva less than 0.3%. The short supply means that vacant apartments are often re-let at higher conditions, especially when tenants change.

Tenants’ rights and options for action

Tenants have the right to demand a rent adjustment if the reference interest rate falls – in writing and with reference to the rate applicable at the time the contract was concluded. Important: The request must be well-founded and may not be overridden by other legally permissible reasons for an increase.

Example: A rental agreement was concluded in March 2024 with a reference interest rate of 1.75%. The reduction to 1.5% as of March 2025 allows a reduction of 2.91% – with a monthly gross rent of CHF 2,000, this is a saving of around CHF 58.80 per month, provided no further cost increases are claimed.

Looking ahead: interest rate cut possible in fall?

The current trend points to a possible further reduction in the reference interest rate. The average interest rate has fallen from 1.53% to 1.44% since the end of 2024 – the lowest value since March 2023. If this trend continues, the threshold value of 1.375% could already be undercut in the second quarter. A reduction to 1.25% would then be possible at the next deadline on September 1, 2025 – with corresponding pressure on rents.

Conclusion: No rise in interest rates, but no broad-based relief either

The current reference interest rate of 1.5 % provides stability, but is no guarantee of falling rents. In reality, rents are increasingly being increased via alternative mechanisms – such as inflation or investments. For many households, the housing cost burden remains high. If you want to save money, you should regularly review your tenancy and take advantage of potential reductions.

For landlords, on the other hand, the reference interest rate remains a key management tool for maintaining returns – albeit always in the area of conflict between legal admissibility, the market situation and transparency vis-à-vis tenants.

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.