Reference interest rate remains constant: This is what the decision means for tenants and homeowners

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The Federal Housing Office (BWO) leaves the benchmark mortgage interest rate at 1.75 percent. After two consecutive increases, the interest rate that determines the rental level remains constant. For rental homes, this means you can breathe easy for now. An increase in the reference interest rate will cause the rent to increase.

BWO announced the last increase in the reference interest rate in December 2023; During that period, the rate increased from 1.50 percent to 1.75 percent. This authorized landlords to increase existing rents by around 3.2 per cent from April 2024, based on a reference interest rate of 1.50 per cent, taking into account inflation and general cost increases. Currently, an increase of up to 10 percent in rent is possible for tenants whose reference interest rate is 1.25 percent.

An increase is imminent here. “The increasing shortage in the rental housing market continues to affect rental demand,” Zürcher Kantonalbank Real Estate Research Manager Ursina Kubli (44) told Blick recently. Very few flats are being built. According to experts, the number of vacant apartments will continue to decrease next year, which will make it even more difficult to find affordable rental apartments.

When determining the reference rate, BWO takes as a basis the three-month average interest rate for domestic mortgage requests from Swiss banks. According to BWO, this increased from 1.69 percent to 1.72 percent in the previous quarter. Each new mortgage taken out generally becomes more expensive, which raises the average interest rate. But the distance to the next threshold, 1.875 percent, is still very large. Since the reference interest rate is rounded to the nearest quarterly percentage during the calculation, the next increase will only occur when this value is exceeded. According to most economists, there will probably be no further increases this year. Because they expect significant interest rate cuts from the Swiss National Bank (SNB). These will reduce the average increase in mortgage interest rates.

Many tenants have had to pay additional payments of several hundred francs as early as 2023, as their additional costs increase rapidly. The main reason for this was the high prices of natural gas and natural gas. These have now fallen again but are still subject to strong fluctuations. Additionally, electricity has become significantly more expensive, by an average of 18 percent. This will have a noticeable impact on bills in 2024, especially for homes with electric heat pumps.

At the same time, as inflation rates are falling globally, significant interest rate cuts by central banks are looming, and this is already reflected in longer-term interest rates, which have been lower since last autumn. “We expect the SNB to cut its key interest rate by 25 basis points for the first time in June 2024,” says a UBS study. Provided local inflation does not rise unexpectedly, two further cuts of 25 basis points each are likely in September and December 2024. While interest rates on fixed-rate mortgages have already peaked, money market mortgages, also known as Sarong mortgages, are also expected to fall from mid-year. This is good news for homeowners. (uro/dvo/SDA)

Source :Blick