Swiss Finance: What Is the Swiss Reference Interest Rate?
In the Swiss economy, the reference interest rate, or mortgage reference rate, is an important metric. It affects the price of rents as well as mortgages. If you rent a property in Switzerland, your rent may go up or down in line with the Swiss reference interest rate.
How Does the Reference Interest Rate Work?
Every quarter, the Swiss National Bank calculates the average mortgage interest rate on all mortgages in Switzerland. The result is rounded to 1/4 percent and published as the reference interest rate. Between its introduction in 2008 and March 2023, it fell consistently. However, it has been rising since then and is now at 1.75%. The next publication date is September 2nd, 2024.
What Is the Difference Between the Mortgage Reference Interest Rate and the Swiss National Bank Interest Rate?
When reading about Swiss interest rates, you might come across two figures: the reference interest rate and the SNB interest rate. As discussed, the former is the average of all mortgage interest rates in Switzerland. It is mainly used in the real estate sector. On the other hand, the SNB interest rate is more comprehensive. It influences the level of economic activity and the cost of borrowing in Switzerland. A higher rate can control inflation and cool the economy, while a lower rate boosts the economy and stimulates borrowing and investment. Currently, the SNB interest rate is at 1.25%.
What Does This Mean for Me as a Tenant?
In Switzerland, landlords can’t raise the rent at will unless this is specified in the rental contract. Instead, they have to justify any rent increases. One of the most common reasons is a rise in the reference interest rate.
As soon as this rate changes, your landlord can announce a rent increase. However, they have to give you enough notice so that you can end your tenancy before the increase takes effect. Most rental contracts have a three-month notice period, so the increase is likely to occur three months after the reference interest rate change.
How Much More or Less Will I Pay?
For every 0.25% increase, your landlord can put up your rent by 3%. For example, if you signed your contract in January 2024 when the interest rate was 1.25%, your landlord can raise the rent by 6% now that the rate is 1.75%.
The same goes for rent reductions. If the reference interest rate falls by 0.25%, you can ask for a reduction of up to 2.91%. However, you may not receive the full reduction due to inflation.
Can I Ask for an Adjustment?
Although your landlord will let you know about any rent increases, they won’t automatically lower your rent when the reference interest rate falls. Instead, it is your responsibility to ask for an adjustment. It’s best to send your application as a registered letter.
Before you submit your request, check the reference interest rate listed in your rental agreement. You can only ask for a decrease if this rate is higher than the current one.
Should I Always Ask for an Adjustment?
Whether you should ask for an adjustment depends on your situation and your relationship with your landlord. Under normal circumstances, asking for an adjustment is highly recommended because it can save you hundreds of francs per year.
However, some landlords don’t raise the rent when the reference interest rate rises or when their costs increase, because they want to maintain good relationships with their tenants. In such a case, you may want to maintain the status quo, especially if you’ve been renting from the same landlord for many years and plan to continue to do so.
Why Else Might My Rent Change?
Aside from a change in the reference interest rate, your landlord can raise the rent for several reasons:
- Improvements to the property: If your landlord makes investments in your property, they can raise the rent proportionately. However, this doesn’t include maintenance or necessary repairs. Only investments that increase the value of the property warrant a rent increase. For example, your landlord can’t charge you more if they replace a faulty washing machine. However, a conservatory would be considered a value-enhancing investment.
- Increases in running expenses: If the landlord can prove that their running expenses have increased, they can pass the cost on to you. Examples of running costs are insurance, property management costs, and taxes. Some landlords raise the rent by a flat percentage each year to account for this, but if you believe the increase is too steep, you can request proof of their expenses.
- Inflation: If the cost of living increases due to inflation, your landlord can pass 40% of this on to you. This means that if the consumer price index indicates a 5% change, your rent can increase by 2%.
Is It Better to Rent Long-Term or Buy a Property in Switzerland?
Most expats start by renting a flat or house. In Switzerland, renting is very common, and the majority of locals don’t own their homes. In some areas like Zurich, renting is actually cheaper than buying. Homeowners usually have to provide a sizeable down payment of around 20%. Since the average property costs over $1 million in Switzerland, buying a home means saving up a six-figure sum and taking out a large mortgage.
On the other hand, Swiss property is a stable and safe investment. If you want to stay in Switzerland for many years, it may be worth it. Some studies have shown that Swiss people who own property have more wealth in old age than those who rent all their lives.
The Swiss reference interest rate is important for both homeowners and tenants because it affects mortgages and rents. If you’re looking to move to Switzerland, sign up for our Rigby AG newsletter to receive your free Living in Switzerland e-book. It contains helpful tips about moving, renting, and many other aspects of expat life.