What you need to know about the reference rate hike – what rent increases will be coming soon?

Housing shortages are driving up rents for people who change homes. Rental increases are likely to continue. This Wednesday, the Federal Housing Office (BWO) will provide information on the evolution of the current reference interest rate. This is decisive under the tenancy law.

If the developments in the real estate market have not affected the rents of current tenants, this may now change. The significant increase in mortgage interest rates means that the reference rate will rise for the first time since it was introduced in 2008. Because the average interest rates of banks are taken as a basis.

When it was introduced in 2008, this rate was 3.5 percent. Since its existence, only so far, it has dropped from 1.5 percent last March 2020 to its current 1.25 percent. Experts disagree on whether and when the mortgage reference interest rate for residential rents should rise. An increase in Wüest Partner is said to be expected “over the year”. Real estate professionals at UBS assume that the benchmark interest rate will be raised in the first half of 2023 “but most likely by June,” according to the major bank.

The first hike will take place in the summer

Real estate professionals from ZKB, Credit Suisse and Raiffeisen expect the first upward adjustment in the second half of the year. In such a case, all households made at the current reference interest rate will feel its effects. If the reference interest rate rises from 1.25% to 1.5%, landlords will be able to increase the rent by 3%. “This should be the case for almost 50 percent of all leases,” says Ursina Kubli (43), senior real estate specialist at ZKB. If the host is an institutional investor, the probability is slightly higher. Example: With a monthly rent of 2,000 francs, the expected increase is 60 francs.

Homeowners have the upper hand

On the other hand, homeowners who do not apply previous reference rate cuts may not reflect the increase accordingly.

And: “The rent should not be increased overnight,” says Fabian Gloor (37), head of the tenants’ association legal advice line. Rental increases are only permitted on the next contract termination date and are subject to a notice period plus a ten-day consideration period.

Tenants face cost hammer

It’s still unclear how many landlords will eventually charge higher rents. However, in the current tense situation in the rental housing market, property owners have more pressure. Lack of housing minimizes the risk of termination. “Landlords will probably want to push for rent increases,” Kubli says.

There is also inflation compensation allowed by tenancy law, 40 percent of which is transferable. Tenants are facing a real cost hammer this year, with side cost bills again higher this summer than in previous years. According to the tenants association, it is therefore advisable to set aside money now if the household budget allows.

And it could get worse: If the mortgage reference rate normalizes to 2.5 percent over the next few years – as UBS estimates – then rents could rise by around 20 percent by 2025 “depending on the inflation rate.”

Source :Blick