Reference interest rate falls to 1.25%: Effects on tenants and opportunities for owners

On September 1, 2025, the Federal Housing Office (BWO) lowered the mortgage reference interest rate to 1.25%, which will apply from September 2. The current adjustment lowers the basis for calculating rent adjustments in Switzerland and opens up potential rent reductions if rental agreements were previously based on a higher reference interest rate. In other words, many tenants can now demand a reduction in their rent. At the same time, the changed interest rate environment creates opportunities for owners, especially those planning to sell their property.

BWO reference interest rate: calculation, rounding and effect

The mortgage reference interest rate is determined and published quarterly by the BWO. It is calculated from the volume-weighted average interest rate of all domestic mortgages – a so-called mixed rate that also includes current fixed-rate mortgages. This average value is then commercially rounded to the nearest quarter of a percent. If the reference interest rate changes, the change comes into force on the day following publication.

Example: If the average interest rate falls below a certain threshold, the reference interest rate is rounded down to the next lower quarter of a percent. In the same way, if a threshold is exceeded, the interest rate is rounded up. This explains the current reduction to 1.25%, after the average interest rate on mortgages had recently fallen below the relevant threshold.

Effects of the reduction in the reference interest rate on tenants and landlords

For tenants, the current reduction in the reference interest rate opens up the possibility of a rent reduction of around 2.9% per 0.25 percentage points. This means that anyone with a contract that is still based on a reference interest rate of 1.50% can claim a reduction of this magnitude. With a monthly rent of CHF 2,000, this corresponds to a reduction of just under CHF 700 per year. However, it is important to note that an adjustment is not automatic; tenants must actively apply to the landlord in writing.

Although landlords are obliged to pass on a reduction in the reference interest rate on request, other influencing factors can reduce or neutralize the effective claim. These include, in particular, inflation or general cost increases as well as the landlord’s permitted return. These factors may be taken into account by the landlord and may result in the rent reduction being lower or not being applied, even though the reference interest rate has fallen.

Now particularly interesting: Sales opportunities for owners

Not only tenants, but also owners are feeling the effects of the new reference interest rate – albeit in a different way. Anyone thinking about selling a property will find the current conditions particularly attractive. Why now is a good time to sell:

• Stable to slightly falling reference interest rate: The new reference interest rate of 1.25% signals a phase of low financing costs. Potential buyers can continue to obtain mortgages at favorable conditions. This ensures stable demand for residential property, as financing remains affordable for buyers.
• Buying property more attractive than renting again: Current market analyses show that from the end of 2024 / beginning of 2025, buying was once again cheaper than renting on average. Rising rents in many regions combined with moderate mortgage interest rates mean that more and more households are considering buying a home financially. This dynamic is also boosting demand for home ownership.

• High demand with a short supply: As long as the supply of properties – especially in sought-after urban areas such as Zurich – remains scarce, sellers are in a comfortable position. There is a seller’s market in which many prospective buyers meet comparatively few properties. For owners, this tends to mean higher sales prices and shorter marketing times.

Anyone looking to sell their property at the moment is benefiting from attractive market conditions. The combination of stable mortgage interest rates, strong demand and good financing conditions creates a favorable environment to achieve a successful sale now.

Recommendations for owners & sellers

What should owners who want to make the most of this situation do? Below are some recommendations for action and the advantages they offer:

• The market now: Take advantage of the current high demand and stable interest rates. Keep an eye on price developments in your region in order to wait for the right moment to sell.
• Actively use sales arguments: Emphasize the low financing costs to prospective buyers.
• Use the properti valuation tool: Have your property professionally valued, e.g. with the properti valuation tool. A transparent market analysis provides you with a solid basis for decision-making and shows what potential your property has on the market.

To summarize: What does the reference rate cut mean for all sides?

Finally, a look at the different perspectives:

• For tenants: You now have the opportunity to apply for a rent reduction of around 2.9% – provided your rental agreement is based on a higher reference interest rate than 1.25%. It is worth checking the rental agreement and, if necessary, requesting an adjustment from the landlord in writing.
• For landlords: The reduction in the reference interest rate can lead to a decline in rental income if corresponding applications are made. At the same time, the requirements for optimizing income through value retention, renovations or careful tenant selection are increasing. It is therefore crucial for landlords to review their own calculations and actively manage their tenancies.
• For owners / sellers: They have ideal conditions to successfully market their property. Favorable interest rates, easier financing for buyers and persistently high demand mean that a sale can currently be extremely attractive. If you sell now, you may be able to achieve real added value.

Conclusion

The reduction of the mortgage reference interest rate to 1.25% creates a win-win potential: tenants benefit from possible relief, while owners can take advantage of strategic market opportunities.

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