Reference Rates dropping in Switzerland- What does this mean for our clients?

Alliance Relocation reviews the potential benefits and pitfalls. Read our top tips on how to approach your landlord for a reduction. On what grounds can you be refused?

The Swiss reference mortgage rate (Hypothekarischer Referenzzinssatz), which determines rent adjustments, currently stands at 1.75% as of December 2, 2023. However, forecasts from financial institutions such as UBS, SNB and the Zürcher Kantonalbank suggest that the rate could drop to 1.5%  during 2025.

Impact on Renters in Zurich, Schwyz, Zug, and Luzern

A reduction in the reference mortgage rate is good news for tenants, as it legally entitles them to request a rent reduction. Under Swiss tenancy law, a 0.25 percentage point drop in the reference rate generally justifies a 3% decrease in rent.

Renters should check their rental contracts to see the reference rate used when their rent was last set. If their rent was based on a higher rate than the new 1.5% threshold, they have a strong case for requesting a reduction. However, landlords are allowed to offset some of the reductions by factoring in higher maintenance costs and inflation-related expenses, which could affect how much rent actually decreases.

How to Request a Rent Reduction

If tenants wish to apply for a rent reduction, they should:

• Submit a formal request in writing to their landlord.

• Send it via registered mail to have proof of submission.

• Ensure the request is submitted before the next possible rental adjustment period (often aligned with contractual notice periods).

If the landlord does not respond within 30 days, or rejects the request, tenants have an additional 30 days to appeal to the local rent dispute arbitration authority (Schlichtungsbehörde).

Why did the Reference Rate Increase After COVID-19?

Following the COVID-19 pandemic, inflation surged worldwide, prompting central banks to raise interest rates. In Switzerland, this led to an increase in mortgage rates, which in turn pushed up the reference mortgage rate to 1.75% in December 2023.

However, recent developments suggest a reversal of this trend. The Swiss National Bank (SNB) has begun easing its monetary policy, cutting its key interest rate to 0.5% in December 2024. This has caused mortgage rates to fall, setting the stage for the expected reduction of the reference rate to 1.5% in March 2025.

Will the Reference Rate Stay Low in the Future?

The future of the reference mortgage rate depends on inflation trends and the SNB’s monetary policy. If inflation remains low, the SNB could continue cutting rates, leading to further declines in mortgage and rental costs.

SNB Chairman Martin Schlegel has even hinted that, if necessary, Switzerland could reintroduce negative interest rates, which would push mortgage rates even lower.

For renters, this means that if interest rates remain low, further rent reductions could become possible. Tenants should stay informed and proactively request adjustments whenever the reference rate changes.

What to Do If Your Landlord Refuses or Ignores the Rent Reduction Request

If your landlord refuses your rent reduction request or does not respond within 30 days, you have the right to escalate the matter to the local rent dispute arbitration authority (Schlichtungsbehörde). Here’s what you should do next:

1. Send a Reminder (Optional but Recommended)

If you haven’t received a response within 30 days, you can send a polite reminder via email or registered mail. This shows good faith before taking legal steps.

2. Contact the Arbitration Authority (Schlichtungsbehörde)

If the landlord still ignores your request or denies it without justification, you can file a complaint with the local arbitration board.

• Where to file?
  You must contact the Schlichtungsbehörde in the canton where the rental property is located (e.g., Zurich, Zug, Lucerne).

• Zurich: Schlichtungsbehörde Zürich

• Zug: Schlichtungsbehörde Zug

• Lucerne: Schlichtungsbehörde Luzern

• How to file?
  You will need to submit a written application (often via an online form or letter) outlining:

• Your rental details

• A copy of your rent reduction request

• Proof of delivery (if sent by registered mail)

• Any response (or lack of response) from your landlord

• What happens next?
  The arbitration board will schedule a mediation session between you and the landlord to negotiate a fair solution. If no agreement is reached, the case may proceed to a rental court, though most cases are settled at arbitration.

3. Check if the Landlord Has Offset Rent Reductions with Other Costs

Landlords can refuse to reduce rent if they provide valid reasons, such as:

• Increased maintenance costs

• Inflation-related price adjustments

• Rent Reserved ( Mietzins Vorbehalt) is specifically indicated in your contract

• Renovations that justify keeping the rent stable

However, they must prove these costs. If their justification seems unreasonable, the arbitration authority can intervene.

4. Seek Legal Advice (If Necessary)

If the landlord is uncooperative, you can seek assistance from:

• Mieterverband (Swiss Tenants’ Association): www.mieterverband.ch

• Legal aid services in your canton

Final Tip: Be Proactive

Since the reference mortgage rate is expected to drop by second quarter 2025, tenants should prepare their requests now and track any future changes to ensure they benefit from lower rents.