SWITZERLAND: The benchmark mortgage rate will rise. Will the rent also increase?
According to UBS, the first upward adjustment, to 1.50%, should take place in March. And it won't be the only one!
ZURICH - The benchmark mortgage rate could soon rise and this would be a first in the history of this instrument: according to an analysis published today by UBS it will increase twice in the course of 2023. For tenants, therefore, potential rent increases are on the way : there is talk of an increase of 20% by 2025.
Published quarterly, the reference interest rate is used to adjust rents to the market. Calculated in quarters of a percentage point, it is based on an average interest rate on Swiss mortgage loans, weighted by the volume of loans. Since September 2008 it has been unified nationally and has replaced those previously decisive in the individual cantons for variable rate mortgages.
The rate started with a maximum level of 3.5% and over the years it has fallen steadily at regular intervals, reaching the minimum of 1.25% in March 2020, a level at which it is still today. According to UBS analysts, however, the music is now destined to change, in the wake of the generalized increase in rates: the first upward adjustment, to 1.50%, should occur in March, while a second step, to 1, 75%, could be reached in September 2023.
According to UBS's calculations, a rise in the reference interest rate of 0.25 percentage points allows for an adjustment of the rent by 3%, already on the next termination date. In concrete terms, this means that the increase in the rent cannot take place before July. At the same time, an amount equal to 40% of the accumulated inflation may also be requested. Taking into account the current price increase, this means that landlords could increase rents by up to 4-5% in a first phase and then by a total of 7-8% by the end of 2023.
According to UBS, although these figures may appear gloomy in the eyes of tenants, it is important to underline that only a part of the tenants will be directly affected: in the past, in fact, only in 20% of cases - this is the estimate - has been requested to reduce the rent. . Furthermore, it is likely that not all landlords will actually want to enforce their right to a rent adjustment, especially as tenants' financial leeway will already be restricted by rising ancillary costs.
The UBS specialists are looking even further ahead. They believe the benchmark mortgage interest rate will normalize to 2.5% over the next few years and therefore rents could increase by around 20% by 2025, depending on inflation trends. However, such an increase would be extremely heavy for many families, especially if the ancillary costs were to continue to increase. In light of this, it would therefore not be surprising if the reference interest rate were increasingly questioned: for UBS, therefore, its reform or even its abolition in the near future are two possible scenarios.
Art. Appeared on 10.10.2022 on tio.ch