Rising mortgage costs: what you need to know as a landlord

The Swiss National Bank (SNB) calculates the mortgage reference interest rate every three months. This rate has been used as the basis for rent structuring in Switzerland since September 2008. The average value calculated by the SNB is rounded to the nearest quarter of a percentage point. The SNB uses the real mortgage interest rates charged by banks in Switzerland as the basis for its calculation. The reference interest rate therefore represents the average mortgage interest rate in Switzerland.

Landlords are allowed to increase rents as the reference interest rate rises

The Federal Office for Housing (FOH) publishes the reference interest rate calculated by the SNB on a quarterly basis. The new rate is announced to the media and published on the FOH website. According to the FOH, the interest rate rose from 1.25 % to 1.5 % as of 2 June 2023. You can find past interest rate trends here. The new rate is published on the first working day of March, June, September and December respectively. For landlords, a higher reference interest rate means that in mathematical terms, their mortgages have become more expensive. Depending on the initial situation set out in the rental agreement, landlords may charge their tenants for the general increase in credit costs. This also applies to landlords who don’t have to pay any mortgage interest because their property is debt-free.

Rent may increase by 3 %

If tenants have a reference interest rate of 1.25 % specified in their contract, landlords can generally increase the rent by 3 %. This applies primarily to rental agreements concluded between March 2020 and the end of May 2023.

It’s worth bearing in mind that, pursuant to the Swiss “Ordinance on the rental and lease of residential and business premises”, the reference interest rate is only decisive for rent adjustments in existing, unlimited rental agreements (see: Art. 13 RRBPO). The rent calculator from HEV, the Swiss homeowners’ association, makes it easy to calculate a possible rent adjustment. However, this digital tool does not work for rent increases due to extensive renovations or value-enhancing investments.

Permitted rent increase is regulated by law

The amount of the permissible rent increase is precisely regulated by law. As a rule, a mortgage interest rate increase of a quarter of a percent generally entitles the holder to a rent increase of no more than:

• 2 % if mortgage interest rates exceed 6 %;
• 2.5 % with mortgage interest rates of between 5 and 6 %;
• 3 % if mortgage interest rates are below 5 %.

In the case of mortgage interest rate reductions, on the other hand, the rent must be reduced accordingly or the savings offset against cost increases that have occurred in the meantime. In the case of rent adjustments due to mortgage interest rate changes, it must be taken into account whether and to what extent previous mortgage interest changes led to rent adjustments.

It’s worth bearing in mind that both tenants and landlords may request an adjustment to the rent to compensate for changes in costs that have occurred since the rent was last determined.

Cases where landlords can adjust the rent

Important information for landlords: rental rates are considered improper if they generate excessive rental income or if they are based on an obviously excessive purchase price. Rental rates are generally not deemed improper as long as they:

• are within the range of the typical rent for the local area or district;
• are justified by cost increases or additional services on the part of the landlord;
• in the case of new buildings, are within the range of the cost-covering gross yield;
• are intended solely to offset a rent reduction previously granted by redistributing customary financing costs and defined in a payment plan notified to the tenant in advance;
• only offset inflation on the risk-bearing capital;
• do not exceed the scope recommended by landlord and tenant associations, or organisations that pursue similar interests, in their framework agreements.

With regard to value-adding investments, it is important to note that investments made since the last rent adjustment for value-enhancing or energy-related improvements or extensive overhauls justify an increase. Maintenance costs that merely maintain value do not justify a rent increase. The size of the increase depends on the type of investment. With regard to inflation, the law allows for the rent to be adjusted up to 40 % in line with inflation.

An example calculation: if prices in Switzerland go up by 5 %, you can increase the rent by 2 %. Landlords can also increase the rent if the actual rent paid no longer corresponds to the prices typical for the local area or district.

The proper procedure for a rent increase

Karin Weissenberger, head of the Casafair association’s advisory team, says: “As a landlord, if you have passed on all reductions to date, you need to check whether your net yield is still within reasonable limits. If the interest rate on equity is very low, an increase is certainly justified so that you as the owner can meet your obligations.” If you have checked the legal requirements and the rental contract in detail and come to the conclusion that an increase in rent is not improper, you must make sure you communicate the rent increase at least 10 days before the start of the notice period, using a form approved by the canton and stating your reasons. The rent increase is null and void if you do not communicate it using the prescribed form, if you do not give a reason for the increase or if you threaten to or actually give notice to the tenants. You can find the official form on the website of the canton where your property is located.

It’s worth bearing in mind that a rent increase applies from the next notice date at the earliest.

Arbitration: observe the deadlines

If your tenants do not accept the rent increase, they must appeal to the relevant arbitration authority within 30 days. The authority has the task of reaching an amicable settlement between the parties as part of a cost-free procedure. If this period expires without the tenant(s) objecting, the rent increase is legally binding – whether justified or not.

If your tenants contest the increase within the statutory period, the arbitration authority will contact you and the tenants and invite you to a verbal hearing. If no agreement is reached in the arbitration proceedings, the arbitration authority may propose a judgement or grant the refusing party permission to sue. The proposed judgement is subject to a 20-day deadline. Within this period, both parties have the choice of accepting the proposal or not. If neither party rejects the proposal, it is deemed to have been accepted. If no settlement is reached, the parties must try to enforce their claim in court. Court proceedings of this kind are subject to fees in all cantons of German-speaking Switzerland.

Take note: if you get permission to sue, you only have 30 days to go to court. If you don’t, the previous rent will continue to apply.

Procedure in case of arbitration

To avoid a time-consuming arbitration process, owners should try to talk to tenants before making a potentially contentious rent adjustment. Karin Weissenberger from the Casafair association says: “The documents sent to the tenants must be checked again for accuracy. If an error is discovered, the tenant must be informed of this and, if necessary, sent a corrected calculation. It’s never a bad idea to try to talk to tenants to clarify questions and clear up any misunderstandings. The rental contract, previous rent changes and the current rent change must be submitted for arbitration.”

Protection against termination during proceedings

N.B.: During arbitration proceedings, tenants are protected against termination, as they should be able to initiate proceedings without pressure. This increased protection against termination lasts for three years after the end of the proceedings. The following exceptions apply: 

• you receive permission to sue and a court verdict is reached in your favour; 
• you urgently need the property for your own use;
• the tenants violate their duty of care and consideration;
• the tenants only contact the arbitration authority in order to benefit from protection against termination;
• or the tenants fail to pay the rent despite receiving a reminder.