Good news for renters in Switzerland: the reference mortgage interest rate has decreased from 1.75% to 1.50%, according to the Swiss Federal Office for Housing (BWO). This pivotal change, effective March 4, 2025, marks the first drop since the rate climbed to 1.75% last year and is expected to provide some financial relief for tenants.
The adjustment of the reference mortgage interest rate occurs as part of the standard monetary policy and reflects the average interest rates on Swiss mortgage debts. The BWO announced this latest change after previously raising the rate twice throughout 2023, from 1.25% to 1.75%, which had prompted some landlords to raise rents significantly—by over 10% in some instances.
With this new decrease, tenants whose rental agreements are based on the now-lower reference rate may apply for rent reductions. According to the BWO, there exists the potential for a rent decrease of approximately 2.91% for renters whose current apartment leases rely on the old 1.75% reference rate. This calculation, based on current guidelines, offers hope for many households seeking financial reprieve from their rental payments.
Despite this positive news, experts caution against expecting widespread rent reductions. The landlord-tenant dynamic is complex, influenced heavily by additional cost factors such as general inflation and maintenance costs, which can complicate rent calculations. Particularly, landlords may offset some of the reductions by citing inflation rates, which are permitted to be claimed up to 40% of accumulated inflation since the last rent adjustment.
"For individual households, any potential relief from rent reductions is likely to be marginal, at best," says Santosh Brivio, economist at Migros Bank. He highlights the current economic climate, noting Switzerland has faced higher-than-normal inflation rates, which can diminish the effectiveness of the recently announced reductions. If inflation adjustments exceed the rent reduction eligible from the reference rate change, it's possible some renters may end up facing even higher rents instead of the expected decreases.
"Analyzing the new cost structures is key for homeowners," comments the Swiss Homeowners Association, which is advising its members to review their rental prices appropriately. They posit landlords can justify adjusting rents based on maintenance costs or significant property improvements completed since the previous rental agreement adjustment. This adds another layer of complexity for renters seeking reductions.
Interestingly, the non-profit Swiss Tenants' Association advises tenants to proceed with caution when seeking rent reductions. They recommend careful analysis of individual circumstances before submitting any formal requests for reductions, particularly when considering tools available online to assess whether one qualifies for rent adjustments based on the decrease in the reference mortgage interest rate.
Further complicate the situation, rent cost assessments must take inflation and price increases since the last rental agreement modification. With inflation affecting all aspects of the economy, landlords may be inclined to push through rent increases rather than accept reductions, which can be challenging for tenants to combat.
According to UBS economists, most tenants can expect effective rent reductions to hover closer to 2% of their net rent instead of the anticipated 2.91%. This realization is significant, especially since economists such as Brivio believe any unspent savings could lead to increased consumer spending, thereby helping stimulate the overall economy.
The next assessment of the reference mortgage interest rate is scheduled for June 2, 2025, and experts remain divided on whether another decrease will occur later this year. Insights from Raiffeisen suggest there may be another cut during the second half of the year, but UBS remains skeptical about this scenario, deeming it unlikely for any reductions before 2027.
For renters unsure about their rights after this recent rate change, the Swiss Tenants' Association has provided resources, including online rent calculators, allowing individuals to determine their eligibility for rent reductions based on the lowered reference rate. Users can quickly assess whether they qualify for reductions and, if so, generate personalized letters to submit to their landlords.
Overall, the reduction of the reference mortgage interest rate offers some hope for renters, but it also presents challenges. The realities of inflation and landlord practices complicate the straightforward application of reduced rents. The coming months will indicate how this decision plays out in practice and whether it translates effectively to tangible benefits for Switzerland's tenants.