Low interest rates are not easing the pressure on rents

The reference interest rate in Switzerland remains at 1.25 per cent, but this is doing little to stabilise the housing market. Despite the historically low rate, UBS expects rents to rise again in 2026 and 2027, whilst an increase to 1.5 per cent from the end of 2027 could make it easier, from a legal perspective, to impose new rent increases.

The relief provided by the reference rate is only reaching the market gradually. A mortgage reference rate of 1.25 per cent remains in force as of 2 June 2026. The decisive factor here is not the cost of new loans, but the average interest rate on all outstanding mortgages. According to the Federal Office for Housing, this stood at 1.32 per cent as at 31 December 2025, and was therefore still below the threshold for an increase to 1.5 per cent.

For households that have claimed a reduction in their existing rent in good time, this does provide some relief. However, this mechanism hardly applies when moving house. According to UBS, asking rents for newly advertised flats are around 15 per cent higher than they were five years ago. Low interest rates and more expensive housing are therefore occurring simultaneously.

The existing housing stock is stabilising, but the wider market is not
This divergence is also evident in the latest price data. According to UBS, the rent index in May 2026 was just 1.1 per cent above the previous year’s figure. Nevertheless, UBS economists expect a further increase of 1.5 per cent in both 2026 and 2027. For owners, property managers and investors, this means that rents for existing tenancies will rise less sharply for the time being, whilst new lettings remain under sustained pressure from supply shortages.

The shift in interest rates would have a noticeable impact under tenancy law
On 18 June 2026, the Swiss National Bank left its key interest rate at 0 per cent. In its baseline scenario, UBS does not expect monetary policy to tighten again until 2027 and forecasts the reference interest rate to stand at 1.5 per cent towards the end of 2027. Such a move of 0.25 percentage points would be more than just a technical milestone for the rental market. It could allow for rent increases of up to 3 per cent under tenancy law, provided the legal requirements are met in each individual case.

Negative interest rates are hardly the main topic any more
According to UBS, a further fall in the reference interest rate to 1 per cent is currently extremely unlikely. For that to happen, the average mortgage rate would have to fall below 1.125 per cent. In the context of the property market, the focus is therefore shifting away from the question of even lower interest rates and towards how long the pressure on asking rents will remain high and when the next reference interest rate review will see rates rise again.