| Ramzi Chamat
In the Swiss real estate landscape, where rents often constitute a major financial burden for many residents, the recent announcement by the Federal Office of Housing (OFL) has brought a sigh of relief to tenants. After a year marked by upward adjustments, the reference interest rate applicable to lease contracts remains stagnant at 1.75%. This decision, though temporary, provides a welcome respite in a context where housing costs are closely scrutinized by many Swiss households.
After a year marked by upward adjustments, the reference interest rate applicable to lease contracts in Switzerland remains unchanged at 1.75%. This news, announced by the Federal Office of Housing (OFL), provides a welcome relief to tenants in a country where housing costs are often a major concern.
The weighted average interest rate of mortgage loans, which serves as the basis for this reference, stood at 1.72% at the end of the last quarter, slightly up from the previous quarter. For the reference rate to undergo a change, it would need to surpass 1.87% on the upside or drop below 1.63%. However, none of these conditions have been met, thus maintaining the status quo for tenants.
The decision to maintain the reference rate is closely linked to the recent easing of mortgage rates in Switzerland. This easing is favored by a declining inflation rate and hopes of a potential decrease in the central bank interest rate by the Swiss National Bank (SNB). However, despite this temporary stability, perspectives regarding the future evolution of the reference rate remain subject to debate.
Some economists, such as Claudio Saputelli of UBS, believe that the current rate could represent a peak. UBS even predicts three cuts to the SNB's interest rates in 2024, which would contribute to easing the rates practiced in the mortgage market. This view is shared by experts from the Zurich Cantonal Bank (ZKB), who also anticipate a relaxation of monetary policy.
However, other voices express divergent opinions. Thomas Stucki of the St. Gallen Cantonal Bank does not rule out the possibility of a further increase in 2024, especially considering the higher costs of new fixed-rate mortgages compared to those maturing. Similarly, Raiffeisen does not expect a decrease in the reference rate before 2026.
This uncertainty about the future of the reference rate has direct implications for the Swiss rental market. Tenants, who experienced two 25-basis-point increases in the previous year, saw their rents rise significantly. Some landlords even increased rents by more than 10%, partly to offset inflation. The Federal Office of Housing notes that inflation can be taken into account up to 40% of rent prices.
These increases are reflected in Swiss real estate market data. According to the Homegate real estate platform index, rents increased by 0.3% on a monthly basis in January, with an annual increase of 1.9%. In the previous year, rents saw an average increase of 4.4%, bringing the price per square meter to 281.2 Swiss francs, according to ImmoScout24 and the Cifi real estate consultancy.
In a country where housing costs heavily burden household budgets, maintaining the rent reference rate at 1.75% offers temporary relief to Swiss tenants. This decision, partly influenced by the easing of mortgage rates and uncertain future prospects, provides a welcome respite in a volatile real estate market. However, challenges persist, and tenants remain vigilant against any potential fluctuations that could impact their housing expenses.
