Reference interest rate before the turning point: rents are expected to rise by 8 percent by the end
by Properti AG: Rent, News 13.10.2022 Blog
Since the mortgage reference interest rate was introduced, it has steadily fallen. That is about to change: according to UBS, tenants will have to expect the first rent increase at the beginning of next year – prices could rise by up to 20 percent by the end of 2025.
First reversal in the reference interest rate expected
In 2008, the mortgage reference interest rate was launched with the aim of harmonizing rent structures across the country. Since then, the rental prices have been based on this reference rate - and so far there has only been one direction in its development, downwards: Since it was in existence, it has fallen from 3.50 to 1.25 percent.
But in an analysis published earlier this week, UBS is assuming that things are about to turn around: Due to inflation and rising interest rates, experts expect the reference interest rate to rise by a quarter of a percentage point for the first time in March 2023, another one An increase in September 2023 is also likely.
In its forecast, UBS assumes that the Swiss National Bank (SNB) will tighten interest rates again, which will make money market mortgages more expensive by half a percentage point in December 2022. At the same time, the big bank expects long-term mortgage interest rates to remain stable in the coming months.
What does this mean for the rental prices?
If the increase in the reference interest rate expected by UBS occurs in March 2023, landlords could demand higher rents from July 2023. Tenants must therefore expect higher basic rents in addition to the already rising ancillary costs. Leaving aside the cost-of-living adjustment, rents, which are based on the current reference interest rate, are likely to be increased by 6 percent by the end of 2023 in accordance with tenancy law.
"At the same time, the 40 percent increase in prices that has accumulated since the last rent adjustment can be passed on to rents," write the UBS experts. In concrete terms, this means that landlords could initially increase rents by 4 to 5 percent in view of the rising inflation - and in a second step by 7 to 8 percent by the end of 2023.
But that's not all: In its analysis, UBS assumes that the mortgage reference interest rate could level off at a value of 2.5 percent in the long term. This would mean that rents could be increased by 20 percent by 2025, depending on the inflation rate.
Only part of the leases are affected
What at first sounds like a tough task for all tenants is in reality only likely to become a fact for a minority. Because according to UBS, only about 20 percent of tenants have exercised their right to a rent reduction after the previous reductions in the reference interest rate.
If the rent was never reduced, it cannot be increased now. In addition, not all landlords are likely to increase prices, since "the financial scope for tenants has already been narrowed by the increased ancillary costs," according to the experts.
Is the end of the reference interest rate near?
Finally, in its forecast, UBS came to the conclusion that the mortgage reference interest rate would probably be increasingly called into question in the event of such an upward movement. A reform or even abolition is therefore definitely possible in the foreseeable future.
Are you a tenant and would like to know whether your rent is within reasonable limits? Or are you a landlord and would like to know what rent you can charge for your property(s)?