Good news for tenants: There will be no interest rate shock this year

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Tenants in Switzerland can breathe a sigh of relief. Most likely, there will be no further increase in the mortgage loan reference interest rate in March. This means they will likely be spared another rent shock for now. Last year, the reference interest rate increased from 1.25 percent to 1.75 percent in two stages. Some landlords took this as an opportunity to raise rents significantly (by over 10 percent in some cases).

Next Friday will be the next quarterly publication of the reference rate by the Federal Housing Office (BWO). Economists surveyed by the AWP news agency unanimously do not expect an increase. There has been a recent relaxation in mortgage loan interest rates, on which the reference interest rate is based. In the background were low inflation rates and the hope that the Central Bank would soon reduce interest rates.

Raiffeisen Switzerland chief economist Fredy Hasenmaile (56) does not expect any change in the reference interest rate throughout 2024. The underlying average interest rate on all outstanding mortgages, currently 1.69 percent, is too slow for this. Each new mortgage taken out will generally be more expensive, which will increase the average interest rate. However, the difference is quite high with the next threshold value of 1.875 percent. Only when this is exceeded will the next increase come.

There is no inflation in Saron mortgages

The situation is similar at Zürcher Kantonalbank (ZKB). This institute says, “We assume that the increase in the reference interest rate will be paused this year.” The Swiss National Bank (SNB) is expected to reduce the policy rate slightly towards the end of the year. In the view of the State Bank of Zurich, Saron mortgages, which are based on the SNB’s base interest rate and currently account for a significant portion of mortgage volume, are no longer expected to become more expensive. These had largely driven previous increases because they responded one-to-one to changes in the key interest rate.

UBS’s Claudio Saputelli believes it is very likely that the benchmark interest rate has reached its current peak of 1.75 percent. The big bank expects the SNB to cut key interest rates by 0.25 percentage points three times this year, in June, September and December. This situation limits the average increase in mortgage loan interest rates.

Experts disagree

But there are other voices too. St. “An increase on March 1 is actually very unlikely,” says Thomas Stucki (60) from Kantonalbank Wales. However, there is a high probability that there will be another 0.25 point increase in the reference interest rate during the year. That’s because new fixed-rate mortgages will continue to be available at a significantly higher interest rate compared to expiring mortgages.

Money market mortgages will only be eased by a possible cut in interest rates from the SNB. And Stucki believes it will take a long time.

No increase in 2025

Predictions for 2025 and beyond vary even more. According to ZKB, the increase in the reference interest rate may continue slowly in 2025. This slow increase is due to fixed-rate mortgages that are constantly coming due. They are often concluded on favorable terms and are now being refinanced at higher interest rates. “This gradually increases the average interest rate on which the reference interest rate is based,” says ZKB.

According to UBS expert Saputelli, tenants will not need to prepare for rent increases next year either.

But others even see a drop in the benchmark interest rate on the horizon. For example, Raiffeisen expert Hasenmaile assumes that the next change in the reference interest rate will be a reduction. As he emphasizes, “But not until the beginning of 2026.” (SDA)

Source :Blick