A uniform reference interest rate was introduced for Switzerland in 2008. Previously, the reference interest rate was based on individual parameters such as the variable interest rates of the cantonal banks. The reference interest rate is based on the quarterly volume-weighted average interest rate of domestic mortgage claims. This is rounded to the nearest quarter of a percent. But is this reference interest rate a good thing? We have investigated this question for you. <\/p>\n
Various factors determine the rent adjustments<\/strong><\/p>\n When it was introduced in 2008, the first reference rate was 3.5%. Interest rates then fell continuously, and negative interest rates were even common in Switzerland from 2015 to September 2022. The reference interest rate was subsequently reduced continuously, ending at 1.25%. With each interest rate reduction, rents were reduced by 3% for non-indexed residential rental agreements, which would provide for a minimum rental period of 5 years. However, landlords can offset annual cost increases of 0.5% to 1% per year and 40% of inflation. <\/p>\n Cheap money caused rents to fall<\/strong><\/p>\n In the years 2008 to 2022, inflation totaled 2.4%, so it was practically non-existent with an average of 0.13% per year. It is interesting to note that the reference interest rate was lowered nine times during this period. Landlords had to reduce rents by 3% nine times, and at best were able to offset this with 40% of the 2.4%, i.e. 0.96% inflation and 7% to 14% cost increases. The times of cheap money were therefore not only a good thing for landlords, who had mortgages with attractive interest rates, but also for tenants. <\/p>\n “Thanks to the reference interest rate, there was no inflation until 2020.”<\/span><\/p>\n<\/blockquote>\n Falling rents have almost equalized inflation in Switzerland<\/strong><\/p>\n We took a look abroad: In Germany, inflation over the same period was 30.11%, an annual average of 1.77%. In the USA, inflation over the same fourteen years was 35.9%. So why did we have such a low inflation rate? A look at the Swiss basket of goods shows that housing and energy account for 25.4%. So each of the nine cuts in the reference interest rate reduced the inflation rate by 0.75%. How often have we been amazed to discover that we felt inflation in the restaurant or supermarket, but official inflation was practically zero percent. The reference interest rate was certainly a major factor in the low inflation rate. <\/p>\n Rising interest rates lead to higher rents and higher inflation<\/strong><\/p>\n But as with yin and yang and as with every coin, there is always a flip side. And now interest rate rises are on the cards as a result of an imminent increase in the reference interest rate to 1.5%. The first round of interest rate hikes will hit tenants hard. The cost levels were last adjusted in March 2020. Now, in addition to the 3% potential increase in rents, 40% of an inflation rate of over 5% accumulated since 2020 – i.e. around 2.1% – and 0.5% to 1% cost increases per year can be added in fall 2023, which corresponds to a further 1.8% to 3.6%. In total, rent increases of 6.9% to 8.7% are therefore to be expected in the first round in fall 2023. <\/p>\n “The first mortgage interest rate round in fall 2023 will hit tenants hard.”<\/span><\/p>\n<\/blockquote>\n Secondary effects act as an accelerant<\/strong><\/p>\n Considering that around 25% of the national consumer price index includes housing and energy costs, the 0.25% increase in the reference interest rate would be expected to result in so-called “secondary effects” and thus a downstream control of inflation of around 1.7% to 2.2%. Fortunately, not all landlords will increase interest rates and not all rents were reduced to the previous level in 2020. Nevertheless, the secondary effects will fuel inflation like a “fire accelerator” in future with every reference interest rate increase. <\/p>\n Inflationary spiral can lead to a toxic situation<\/strong><\/p>\n What is the Swiss National Bank doing? An old saying in monetary policy is “Don’t fight against the Fed”. And that means that we must expect the Swiss National Bank to take no account whatsoever of your rental costs or your cost or debt situation. In addition to rising rents, higher energy costs and spiraling wage prices will also lead to higher inflation. Inflation must be combated and the National Bank will take consistent action if inflation exceeds 2%. This mandate could now lead to a toxic situation: Interest rates are raised because inflation is being combated. This leads to an increase in the reference interest rate, which further fuels inflation. A perfect perpetuum mobile, to the chagrin of all market participants. <\/p>\n “The reference interest rate: a perfect perpetual motion machine for the inflation spiral.” <\/span><\/p>\n<\/blockquote>\n The flaw in the system: the reference interest rate has nothing to do with the real mortgage burden<\/strong><\/p>\n Is the reference interest rate a misconstruction? Yes and no. On the one hand, landlords who fixed their mortgages at 0.8% to 1.2% for 10 to 20 years during the low-interest phase will be rewarded in future. However, landlords may have taken out very high fixed-rate mortgages between 2008 and 2015 and were unable to benefit from the low interest rates, but still had to reduce their rents. <\/p>\n An alternative: index-linked rent <\/strong><\/p>\n The alternative would be to link residential costs 100% to the national inflation index, as is customary for commercial leases. This has always been possible, but rental agreements for residential properties, just as for commercial rental properties, can only be linked annually to inflation if the minimum lease term is five years or more. Removing this regulation in combination with a move away from the reference interest rate as a benchmark for rent adjustments could perhaps ensure greater inflation stability. Rents could only have to be increased by 5% (inflation since 2020) instead of 7-9% in fall 2023. Rents would develop in line with inflation, but secondary effects cannot be dismissed here either. <\/p>\n","protected":false},"excerpt":{"rendered":"\n
![\"\"](\"\/resources\/public\/lava3\/media\/bfs-landesindex-der-konsumentenpreise.png?644647a69fcbf\" "\\"\\"")
CPI basket of goods and weights, 2023
Source: FSO – National Consumer Price Index (CPI)<\/em><\/p>\n\n
\n