Reference interest rate remains low until end of 2027: Why rents are still rising

SARON low, reference interest rate at historic low

The mortgage reference interest rate has stood at its historic low of 1.25 percent since September 2025. In a new analysis, UBS economists Fabian Waltert and Thomas Rieder expect this rate to remain unchanged until the end of 2027. Only then is an increase to 1.5 percent to be expected.

The forecast is based on the expected interest rate path of the Swiss National Bank. The key interest rate currently stands at 0 percent. UBS economists expect a first increase of 25 basis points in June 2027. Until then, longer-term mortgage interest rates are also expected to rise only moderately by 10 to 20 basis points.

Why the reference rate reacts with a delay

The reference interest rate does not measure the current terms for new contracts, but rather the average interest rate of all mortgages currently running in Switzerland. New mortgages and renewals have little impact at first. Only when a noticeable portion of the portfolio is refinanced at higher rates does the average shift.

This explains why the low interest rates set by central banks and the capital market only appear in the reference rate with a time lag, and conversely why interest rate increases are transmitted slowly. In the short term, this provides relief for tenants: the current reference rate gives no reason for rent increases based on the interest rate situation.

Nevertheless, asking rents are rising

Paradoxically, the rental market has become decoupled from the reference interest rate. Apartments advertised on real estate platforms now cost on average about 15 percent more than five years ago. These asking rents are relevant for new tenancies and thus impact the housing cost burden for a growing segment of the population.

UBS expects this trend to continue. For 2026 and 2027, the economists expect an annual rent increase of around 1.5 percent. Driving factors are the tight supply in metropolitan areas, persistently high immigration, and significantly increased construction costs. Should the reference rate actually rise to 1.5 percent at the end of 2027, landlords could claim additional rent increases of up to 3 percent.

Buying or renting: The calculation is shifting

This creates a remarkable situation for those interested in home ownership. On the financing side, conditions are historically favorable. Ten-year fixed-rate mortgages are around 1.6 percent, while SARON mortgages are in the range of 0.75–1.00% margin. At the same time, renting is becoming increasingly expensive in many regions.

A calculation example illustrates the shift: Anyone who buys a condominium for CHF 1,000,000 with 75 percent financing pays about CHF 1,000 in interest per month with a ten-year fixed mortgage at 1.6 percent. Added to this are the amortization of the second mortgage, maintenance, and incidental costs. A comparable rental apartment in Zurich, Zug, or Geneva is now rarely available for less than CHF 3,000 per month; in mid-range locations in the Central Plateau, it's often between CHF 2,200 and CHF 2,800. The pure interest component of a purchase financing is therefore well below the monthly gross rental expense of comparable properties.

This calculation does not replace an individual affordability assessment. For formal affordability, banks still calculate using an interest rate of 5 percent. The household must be able to cover the calculated housing costs from a maximum of one third of gross income. With today's purchase prices, this hurdle is insurmountable for many prospective buyers despite the low market interest rate.

System change imputed rental value 2029

In addition, the abolition of the imputed rental value is coming closer from 2029. After the proposal is approved in the popular vote, the taxable income of owner-occupiers will no longer be increased by a notional rental value. In return, the deductions for mortgage interest and maintenance will be eliminated for the majority of owner-occupied residential property. For households with high leverage, this tends to be negative; for owners with little debt, it is more likely to be positive.

The future tax logic changes the longer-term calculation of buying and renting. Anyone planning high amortization and previously factoring in the tax benefit from mortgage interest should recalculate using the rules that will apply from 2029.

Conclusion

The zero interest rate environment will continue for the time being. For existing tenants, the reference rate remains an effective buffer. New tenancies, on the other hand, reflect the shortage of available properties and continue to become more expensive. On the purchase side, the financing environment remains unusually favorable, while formal affordability rules and purchase prices present the real barriers. Those planning to finance benefit from the interest rate situation but must ensure their calculations take into account the change in the imputed rental value system and their own affordability.

Source: Reference interest rate: status and outlook – UBS Switzerland, 24.08.2026