On June 1, 2023, the Federal Housing Office is widely expected to raise the reference interest rate in a bid to ease high inflation in the Swiss housing market. From that date, Blick estimates that more than half of tenants in Switzerland will face higher rental costs. Here’s what you need to know.

Reference interest rate set to rise on June 1, 2023

According to the Zürcher Kantonalbank, reported in Blick, the Swiss government is widely expected to raise the reference interest rate at the beginning of June. The rate, which is used by tenants to apply for rent reductions and by landlords to legally raise the rent on pre-existing tenancy contracts, is expected to increase from 1,25 to 1,5 percent.

The newspaper explained that despite record-high costs for new rental properties in recent months, the reference interest rate has not moved since March 2020. On top of this, the average interest rate on Swiss mortgages - the main metric used to calculate the reference rate - has risen from 1,18 to 1,33 percent between March 2020 and today. 

Over half of households to see rental costs rise

As a result, experts predict that a rise in the reference rate is now inevitable. With this in mind, here’s how the rise will impact the cost of renting a house or apartment in Switzerland.

The latest Immo-Monitoring Report from Wüest Partner found that around 54 percent of rental contracts in Switzerland are based on the current reference interest rate. This percentage rises to more than 60 percent in Canton Zurich and central and eastern Switzerland, but drops to less than 44 percent in Ticino and the area around Lake Geneva.

Rent rises of up to 3 percent are expected

For those signed onto these contracts, likely agreed between now and March 2020, the 0,25 percentage point rise will allow landlords to raise rents by 3 percent on average, according to Wüest Partner. Blick reported that most landlords are expected to inform their tenants about the rental cost rise as soon as the new reference rate is announced.

Sadly, as the nature of the rise is not related to maintenance or upgrades, tenants will not be able to easily appeal the rent increase. If someone wants to terminate their tenancy after the rise, the terms and conditions will be defined in their individual rental contract.

Real estate firms warn rent rises could be higher

Speaking to Blick, insurance group Swiss Life said that "if the expected increase in the benchmark interest rate takes place, we assume that we will adjust the affected rental contracts in our portfolio accordingly”, although noted that it is too early to say when their rents will rise. Some firms are planning further increases, with real estate firm Allreal adding that “in addition to the higher rents due to the reference interest rate, part of the inflation rate will also be passed onto tenants.”

Others are more hesitant, with AXA telling the newspaper that it wanted to “analyse each rental contract individually and consider tailor-made adaptations.” Other large letting agencies like Swiss banks UBS and Credit Suisse, supermarkets Migros and Coop and service providers Wincasa and Livit are yet to comment.