What you need to know Now tenants can really save - but not just like that

The mortgage reference interest rate relevant to tenancy law has fallen from 1.50 percent to 1.25 percent. This was announced by the Federal Housing Office (BWO) on Monday.

With the new reference interest rate of 1.25 percent, tenants are entitled to a rent reduction of around 3 percent. However, this is subject to the condition that previous interest rate reductions have already been passed on correctly. It may therefore be worth checking the rent basis in the current rental agreement.

According to the BWO, the reduction in the reference interest rate now gives tenants a basic entitlement to a reduction of 2.91 percent if the previous rent was based on a reference interest rate of 1.50 percent. In addition to the change in the reference interest rate, however, other cost factors, in particular inflation, can play a role in the rent structure.

This is what the Federal Supreme Court has decided. The calculation behind it: If a rent of CHF 1,000 is increased by 3 percent, this results in CHF 1,030. If the reference interest rate falls again by 0.25 percentage points and the tenants demand a reduction, the rent would have to fall back to CHF 1,000. However, only 2.91 percent is needed to get from 1030 back to 1000. Therefore, interest rate reductions in this step correspond to a reduction of 2.91 percent and not 3 percent.

This is done by the Swiss National Bank on behalf of the Federal Office for Housing (FHO). All banks whose domestic mortgage claims denominated in Swiss francs exceed the total amount of CHF 300 million are obliged to report the data on a quarterly basis.

The current system has been in force since September 2008. Since then, a uniform reference interest rate has applied throughout Switzerland for rent adjustments due to changes in the mortgage interest rate. It has replaced the interest rate for variable mortgages that used to apply in the cantons.

The lower reference interest rate generally leads to lower rents. At the same time, however, landlords are allowed to pass on 40 percent of the inflation accumulated since the last adjustment.

The national consumer price index is used for the exact calculation. The relevant factor is the change in this index since the last rent adjustment. Care must be taken to use the correct months and the appropriate index base from the statistics.

Tenants are entitled to the reduction from the next possible termination date, provided they request it in good time. In practice, reductions are rarely made automatically.

Whether costs are reduced or passed on is up to the owners. This is not decided by the property management companies. However, reductions are rarely made automatically - tenants usually have to take action themselves.

As a rule, cooperatives apply the cost rent, which has to take into account the actual mortgage interest rate and not the reference interest rate. In some cases, however, they still rely on it. A blanket passing on of inflation is not an issue for cooperatives, as only actual cost increases, such as for maintenance, may be passed on in the cost rent.

There are different opinions on this. Some consider it to be established, recognized by all sides and comprehensible. But there is also criticism: some stakeholders would like a simpler system. For example, reference is made to the current practice for commercial leases, where the rent is adjusted annually to the national consumer price index. Over the past 25 years, numerous attempts have been made to revise tenancy law and various models have been discussed. But nothing has changed.

According to analysts, the reference interest rate is likely to remain at 1.25 percent for the next one to two years. Due to the inertia, an increase is "conceivable in the second half of 2027 at the earliest", Raiffeisen chief economist Fredy Hasenmaile said recently. "It is quite possible that tenants will not have to expect an increase for even longer," the economist continued. Other analysts, however, see the possibility of an increase again as early as the end of 2026.

Economists do not expect a further drop, even if the average interest rate is likely to fall slightly. Even during the long period of negative interest rates, the reference interest rate never fell below the 1.25 mark. According to UBS economist Fabian Waltert, an even lower reference interest rate would require "a return to negative interest rates and very low interest rate expectations for years to come". However, this is not currently on the cards.