Reference interest rate decision: rents will likely increase significantly

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Next Thursday, the so-called mortgage reference rate will likely be raised for the first time. This will be the starting signal for a wide increase in rents in Switzerland. This will fuel inflation.

More than a few francs. Anyone paying CHF 2,000 a month for an apartment today may soon have to pay CHF 2,130, almost 7 percent more. This results in additional housing expenses of approximately 1,600 francs per year.

This is an affordable amount for many family budgets. Even more so when housing is already becoming much more expensive due to the rise in oil, gas and electricity tariffs.

Interest rates are at record highs for years

The main reason for the impending price increase is the mechanism of the hypo reference rate, which is likely to negatively impact tenants for the first time since it was introduced in 2008. Since mortgage interest rates have dropped from historic lows as part of the interest rate return, the reference rate is very likely to rise.

The Federal Housing Office (BWO) left the interest rate at 1.25% in its last assessment in March. It has been at a record low since March 2020. However, the average interest rate on domestic mortgage receivables, on which the reference rate is based, had already risen from 1.18 percent to 1.33 percent at that time. If the quarterly calculated value now rises above 1.37 percent, the reference interest rate will be increased to 1.5 percent; Rounded up or down to the nearest quarter of a hundredth.

Homeowners are already planning hikes

This is bad news for tenants. Because if the reference interest rate is increased by 0.25 points, landlords can increase the rent by 3 percent, provided that they skip previous discounts. As a reminder, the rate was 3.5 percent when it was introduced in 2008, then gradually decreased. According to an estimate by Zürcher Kantonalbank, currently about half of all lease agreements are based on the current reference interest rate.

Most will use the increase to raise rents, according to a survey of a dozen large homeowners that the AWP news agency conducted in mid-April. “We assume that if the expected reference interest rate increase occurs, we will adjust the affected lease contracts in our portfolio accordingly,” said Swiss Life insurance group, one of the largest homeowners in the country.

And a spokesperson for a major real estate company said at the time: “In recent years, tenants have enjoyed lower rents thanks to falling mortgage interest rates, but with landlords’ rising financing costs, the pendulum is now swinging in the other direction.”

Big post for tenants

However, the reference interest rate is not the only reason for the increase in costs. The other is inflation, which is currently relatively high. 40 percent of this is transferable. In the example cited above, where no rent adjustments were assumed since March 2020, this again equates to 2 percent.

In addition, some arbitration authorities may also charge landlords “overall cost increases” by applying flat rates, a Federal Housing Office spokesperson said. In the example above, this corresponds to 1.6 percent, with an assumed flat rate of 0.5 percent per annum.

As a result, tenants get a lot of mail. However, the BWO warns against generalizations. When asked by the AWP news agency, a spokesperson said that in general, a change in rent can only be considered in certain individual cases.

SNB in ​​a dilemma

Meanwhile, economists are warning of the economic consequences of rent increases. For example, experts in the Raiffeisen banking group assume that rents will drive inflation in the fall.

This poses a dilemma for the Swiss National Bank: “They actually want to reduce inflation with higher interest rates, but they themselves increase inflation through the reference interest rate.” Therefore, according to the conclusion of the Raiffeisen economists, the SNB itself will become an “inflation driver”.

As it is known, the Central Bank increased the key interest rate from -0.75 to +1.5 in four steps due to high inflation in the last quarters. (SDA/sfa)

Source :Blick