Every three months the rate of interest used to set the rents in Switzerland is reviewed. If it goes down some renters have the right to request a decrease in rent. If it goes up landlords can push up rents. This time the rate remained at 1.25%, however it looks set to rise next year.
The interest rate used to set the reference rate is the average rate on Swiss mortgage loans outstanding at 30 September 2022. The average rate was 1.18%, up from 1.17% from the second quarter of 2022. The average actual rate is then rounded to the nearest quarter of a percent, taking the 1.18% to 1.25%, the same level set at the end of the second quarter.
The system of a rent reference interest rate was introduced in 2008. Since then it has fallen from 3.5% to 1.25%. Over this period it has never risen.
However, changes in the rate are delayed and the reference rate is expected to climb next year when the calculation catches up with the current reality of higher rates. The calculation is made by averaging all existing mortgages of all durations. This slows down the pace of adjustment because 10-year mortgages set when rates were low will remain in the calculation for 10 years. It takes time for new more expensive mortgages to dilute the effects of past long-term mortgages with low rates. This effect also occurs when rates move in the other direction.
Rates for new mortgages are around 2.5% for 2 years and around 3% above 12 years, according to Credit Suisse. These current mortgage rates are far higher than the rent reference rate of 1.25% and are expected to push up the average rate as they accumulate.
The next rental reference rate is due on 1 March 2023 and some experts expect it to be 1.5%.