Rising home loan interest rates are having consequences not only for homeowners but also for tenants. That is, when the reference interest rate rises. And this should already be the first time in 2023. Therefore, half of the rented households should expect a high rent increase in the next five years.
This is illustrated by figures from a new real estate survey by the Zürcher Kantonalbank (ZKB). He says rents will increase by about 15 percent by 2027 because of the interest rate.
Landlords want to raise rents
The reference interest rate is based on the average mortgage interest rate of Swiss banks. It is determined quarterly by the Federal Housing Office and is decisive for rent adjustments in existing tenancies.
Some landlords can legally increase rents if the first benchmark interest rate step occurs in the first half of 2023. At times when vacancies were high, many would probably have done without it. But rising housing shortages and rising rents have changed the situation. “Landlords will probably want to push for rent increases,” says Ursina Kubli, 43, senior real estate specialist at ZKB.
Not everyone is affected
However, not every landlord is allowed to do this! The prerequisite is that today’s leases are based on a 1.25% reference interest rate. This applies if the lease agreement has been signed recently. Or the tenants have requested a rent reduction after the last reference interest rate step.
According to the study, the evaluation of the rent price index data from 2016 to 2022 by the Federal Statistics Office shows that many tenants do not exercise this right. On average across Switzerland, less than a third of all lease agreements are adjusted downwards between the two reference rate cuts. It’s almost 29 percent since the last reference rate cut.
Private landlords are more reluctant
According to the bank, it is largely up to the homeowner whether previous reductions in the reference interest rate are applied. Only 23 percent of private homeowners successfully applied for a discount, compared to 38 percent of professional homeowners.
“It’s quite possible that tenants are more reluctant to make claims because of their personal relationships with private landlords,” says Kubli. In contrast, a tenant’s request has often resulted in professional landlords passing the rent reductions on to all their tenants.
This hits the tenants
However, how many tenants will be affected by each expected increase in the benchmark interest rate also depends on the frequency of the move. Because even with a new lease, landlords are allowed to raise the rent. According to the 2020 relocation report by Homegate and Zürcher Kantonalbank, on average, a tenant changes their flat every ten years.
According to ZKB, almost 50 percent of tenants have recently moved or have taken advantage of all rent reductions in the past 14 years. These tenants can already expect the first rent increase in 2023. In addition, they are affected by all subsequent increases in the coming years.
Overall, there is a potential rent increase of 15 percent through 2027, according to ZKB. In the last year of the forecast, reference interest rate increases of around 76 percent will reach the vast majority of tenants.
Additional costs also increase
On the top of it. That’s because in addition to rent increases from changes in reference interest rates, landlords have the right to roll over 40 percent of the price increase. “This requires an adjustment to the lease and is therefore often requested in conjunction with changes in the reference interest rate,” Kubli says.
As a result, effective rent increases could be even higher. Then there are the rapidly rising energy costs. They cause higher ancillary costs and also place an additional burden on the tenants’ household budget. “If you don’t know what reference interest rate your lease is based on, you’d better look at it,” says Kubli. In this way, negative surprises can be avoided.