With the cost of renting a house or apartment in Switzerland rising dramatically in recent years, most would not anticipate prices falling anytime soon. However, economists and Swiss banks have predicted that rents will drop in 2025 for those on pre-existing rental contracts. Here’s why:

Swiss rental costs predicted to drop in 2025

In a statement given to Watson, Raiffeisen found that rental costs in Switzerland are projected to drop in 2025. The reason can be sourced from the reference interest rate used for Swiss mortgages.

Along with being a guide for lenders, the metric from the Federal Housing Office is used to determine how much landlords can raise or lower rents. If the rate rises, as it did twice in June and December 2023, homeowners are permitted to raise rents on tenants with existing contracts. 

Crucially, however, if the rate falls tenants are able to apply for a rent reduction. As it stands the reference rate sits at 1,75 percent.

Switzerland cuts interest rates with deflation looming

With annual inflation hovering around 0,7 percent, the Swiss National Bank (SNB) has responded by cutting key interest rates to coax economic activity and prevent the country from falling into deflation. The SNB cut rates from 1,75 to 1,5 percent in March, to 1,25 percent in June and to 1 percent in September. 

On December 13, the SNB took the radical move of cutting interest rates by half, to just 0,5 percent. Now, banks have predicted that the rate could fall to 0 or even into the negatives in the next year - a situation where mortgage providers and banks pay you for holding debt. 

Some have even raised the spectre of deflation. Though positive for consumers as prices do fall, the phenomenon is catastrophic for local businesses, who will be forced to lay off workers to afford the lower prices. Writing to Watson, bank J. Safra Sarasin blamed the looming crisis on the fact that many of Switzerland’s major customers for goods, Germany especially, are in the midst of their own financial crises.

How will renters in Switzerland benefit from lower interest rates?

As a result of the SNB rate cuts, interest rates on mortgages have dropped precipitously in recent months. Not only good for homebuyers, the drop means that the reference rate for mortgages will inevitably drop in 2025, allowing tenants to apply for rent reductions. Some, like Raiffeisen and economist Alexander Koch, have said that a double drop could be on the cards in 2025. The first drop is expected in March.

A single 0,25 percentage point drop in the reference rate will allow the majority of tenants to reduce their rent by around 3 percent. This rent cut will apply to those whose landlords have applied both reference rate increases to their rental costs, those who began renting their home after December 2, 2023, and those who started renting their home before June 2, 2017, and have not applied for a rent reduction in the past. This is around two-thirds of tenants in the alpine nation.

Though the phenomenon will benefit those already living in Switzerland, there’s little sunshine on the horizon if looking to move or change homes next year. Thanks to the shortage of housing, asking rents are rising at their fastest rate for over 30 years.