Reference interest rate remains at 1.25 percent: What the June decision means

With the publication of June 1, 2026, the Federal Office for Housing (BWO) has once again confirmed the mortgage reference interest rate at 1.25 percent. This means the rate has remained unchanged since September 2, 2025, skipping a possible adjustment for the fourth time in a row. The background is the sluggishness of the mechanism: The underlying average interest rate of all mortgages outstanding in Switzerland moves only slowly and currently stands at around 1.32 percent. Only a value below 1.13 percent would trigger the next step down to 1.00 percent. In the other direction, a rise above 1.37 percent would be necessary to prompt an increase to 1.50 percent.

How the reference interest rate works

The mortgage reference interest rate should not be confused with the key interest rate of the Swiss National Bank or the current market rates for newly concluded mortgages. Instead, it reflects the weighted average of all outstanding mortgage loans in Switzerland and is published quarterly by the BWO. Because this average also includes fixed-rate mortgages up to ten years old, it reacts to market movements with considerable delay. The BWO rounds the calculated average to the next quarter percentage point. As long as the unrounded value stays within a corridor of about 0.12 percentage points either side of the current step, the published reference rate does not change.

This structure explains why the rate has only moved in one direction since the beginning of 2024: from 1.75 percent via 1.50 percent in September 2024 to 1.25 percent a year later. SARON and short-term fixed-rate mortgages are becoming cheaper more quickly, but long-term fixed-rate mortgages are often still in effect with old, higher conditions. Only when a larger share of these old contracts expire and are replaced with cheaper ones does the average interest rate continue to fall.

Rental contracts: For the time being, no movement in either direction

For ongoing rental agreements, the stagnation has a double meaning. Tenants whose contract is based on a reference interest rate of 1.25 percent currently have no entitlement to a rent reduction. Conversely, they also do not have to fear a rent increase due to the interest rate. Adjustments are therefore only possible via other permissible factors, such as inflation or general increases in costs. However, these are severely limited in scope and are often suspended as many landlords shy away from the administrative effort.

It is different for rental agreements where the rent is still based on a higher reference interest rate, such as 1.50 or 1.75 percent. In these cases, there remains an unexercised entitlement to a rent reduction. Anyone who has never submitted a reduction request should check the relevant rate in their contract. A reduction of 0.25 percentage points entitles the tenant to a rent reduction of 2.91 percent according to the ordinance on the rental and lease of residential and commercial premises. Larger differences are subject to higher transfer rates.

Landlords: Calculation basis remains stable

From the perspective of owners of rented properties, the confirmation of the reference interest rate provides a predictable calculation basis for the coming months. Rent increases for interest-related reasons are ruled out, and at the same time, there is no threat of a widespread wave of reduction requests in new rental contracts. Investors calculating with apartment buildings can continue to expect a stable net rental income level.

Currently, financing costs are more relevant. The interest rates for SARON mortgages have moved significantly below the level still locked in for most existing contracts since the recent easing by the National Bank. Those due for follow-up financing in 2026 will usually benefit from more favorable conditions. However, this development will only be reflected in the reference interest rate with a delay, and therefore, any potential worsening of the ratio between mortgage interest and rental income will also be delayed.

Prospective buyers: Changed opportunity costs

For people weighing up renting versus buying, the stability of the reference interest rate shifts the comparison. In Switzerland, renting has traditionally been partly protected against inflation due to the strong link between rent and reference interest rate. However, if the reference interest rate is not expected to rise for the foreseeable future, this indirect protection for existing tenants becomes noticeably less important. A rise in housing costs currently threatens mainly from inflation, higher ancillary charges, and markups in new leases, but not through the interest rate channel.

On the home ownership side, mortgage rates for fixed-rate mortgages have fallen significantly in recent quarters. Ten-year fixed-rate mortgages are currently being concluded, depending on the provider, in the 1.45 to 1.8 percent range; shorter terms and SARON-based models are lower. As a result, the ongoing burden from interest and amortization in many cases is approaching that of a standard market rent, although when taking into account imputed rental value and maintenance costs. The often-cited rule of thumb that affordability is calculated at five percent remains unaffected. However, the effective burden in the current market environment is noticeably lower than it was two years ago.

Outlook for the coming quarters

The next publications of the reference interest rate are scheduled for September 1, 2026, and December 1, 2026. For the rate to drop to 1.00 percent, banks would have to report a significantly lower average interest rate. The path to this leads through the expiry of old, high-interest fixed mortgages and through favorable follow-up financing. Economists from various institutions currently expect that the threshold could be reached no earlier than the beginning of 2027, provided the interest rate environment does not change abruptly.

Under current conditions, upward movement is considered unlikely. It would require that market rates for new mortgages rise significantly over several quarters and consequently also push up the average for outstanding loans. Until then, all market participants face a rarely calm phase during which the structural topics of the Swiss housing market are likely to receive more attention than the next step of the reference interest rate.

Source: Federal Office for Housing, mortgage reference interest rate