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The mortgage reference interest rate for tenancies in 2021
The mortgage reference rate is calculated by the Federal Office of Housing and applies to rents throughout Switzerland. The basis for the calculation is the average rate for mortgages, a volume-weighted interest rate of domestic mortgages. It is therefore a blended rate between existing and new mortgages, calculated quarterly by the Swiss National Bank. The reference interest rate replaces the interest rate for variable mortgages that used to apply in individual cantons.
The Federal Office of Housing rounds the reference interest rate relevant under rental law in each case in accordance with commercial practice. As soon as the reference interest rate changes compared to the previous quarter, a reduction or increase claim arises. As of the beginning of March 2020, the interest rate was lowered from 1.5% to 1.25%, as a result of which Swiss tenants are still saving several hundred francs per year in 2021.
While mortgage interest rates are falling, the rental price index is rising
The rental price index is set by the Federal Statistical Office and forms part of the National Consumer Price Index. It shows the changes in residential rentals in Switzerland in relation to a reference year (2000 in the following chart). “The low-interest rate environment that has prevailed in Switzerland for several years now is benefiting owners far more than tenants”, Dr Stefan Heitmann, CEO and Founder of MoneyPark points out. This is clear from the rental price index. While the average interest rate for mortgages has been steadily dropping for around a decade, the rental price index has been continuously rising.
Most tenants don’t even ask for a rent reduction
As a representative survey by MoneyPark shows, a typical Swiss person usually finds it too much trouble to ask for a rent reduction. Figures show that only 27 percent of respondents have ever asked for a rent reduction from their landlord..
One of the reasons for the low percentage is surely that the rent reduction must be explicitly requested from the landlord or property management. And even then, the property management is not yet forced to pass on the reduction in full to the tenant. This is because changes in maintenance costs or an increase in the national consumer price index can be set against a rent reduction.
High saving potential of up to 50%
A tenant in Switzerland currently pays an average of slightly more than 1,500 francs per month for a 4-room apartment, excluding ancillary costs, according to the Federal Statistical Office. The monthly mortgage interest for owners of a comparable apartment, on the other hand, stands at only about 700 francs. As a basis for calculating these figures, a market value of 775,000 francs and a mortgage of 620,000 francs (which corresponds to 80% of the market value) are assumed and also the average interest rate for mortgages calculated by the SNB is used.
Source: Swiss National Bank (average mortgage interest rate p.a.), Swiss Federal Statistical Office, MoneyPark
Thus, owners of a 4-room apartment can save 800 francs per month or 9600 francs per year compared to renters.
However, this calculation does not take into account the owner's amortization costs. The principle is that a mortgage should be gradually reduced over 15 years to 65 percent of the property value. However, including amortization in the calculation of the costs of owners compared to tenants is also not necessary. This is because for owners, amortization is a form of "forced savings" as it increases the equity in their property. The amortization owners usually finance by means of account balances and thus immobilize quasi a part of their assets.
While tenants at best voluntarily save money for retirement, owners are encouraged by amortization to invest savings in their property. But even if amortization is included as an expense factor by owners, there remains a cost advantage of 1860 francs per year.
Current mortgage rates
The displayed interest rates are the best rates currently available. Your personal interest rates may vary depending on LTV, affordability, mortgage amount and the location of the property.