A new report by UBS has forecast that the cost of renting a house or apartment in Switzerland will rise by up to 8 percent in 2023. The Swiss bank explained that the expected rises in the reference interest rate will allow landlords to raise their prices for tenants.

Higher reference interest rate means soaring rental costs in Switzerland

The reference interest rate is a theoretical figure used by the government to control how much landlords can increase - and in theory, reduce - their rents. Up until now, the recent decline in the rate - having fallen to 1,25 percent in March 2020 - has allowed tenants to apply for rent reductions, but with the global economy slowing and inflation reaching significant heights, the reference interest rate is expected to rise, which will allow landlords to charge more.

In the report, given to Blick, UBS said that assuming that the Federal Housing Office raises the reference interest rate by 0,25 percentage points next year - which it is expected to do twice, once in March and once in September - landlords will be entitled to demand 6 percent more rent by the end of 2023. What’s more, if inflation continues at its current rate, the bank predicted that landlords may be allowed to raise rents by up to 8 percent by the end of next year.

Too few people apply for rental reductions, say UBS

This rate increase will be particularly damaging, as UBS found that only one in five tenants has applied for a rent reduction since the rate first began to fall in 2009. This was echoed by a report by the Swiss Tenants’ Association, which found that landlords were technically charging 14 billion francs too much rent a year because not enough people were asking for rent reductions.

According to Blick, UBS said it doubted whether landlords would apply the rent increases they are technically entitled to, especially in areas of low demand. However, in their long-term forecast, they predicted that in 2025, if the reference interest rate continues to rise to 2,5 percent, rental costs in Switzerland will be 20 percent more compared to today.