The Swiss mortgage reference rate, a key determinant of residential rents, is expected to remain at its historic low of 1.25% through at least the next several quarters, UBS Switzerland economists said. The rate has held steady since September 2025, following successive reductions by the Swiss National Bank (SNB) that brought its policy rate to zero.
While households eligible for rent reductions have benefited from lower net rents, the broader market tells a different story. UBS data shows that new rental listings are now priced roughly 15% above levels from five years ago, meaning tenants relocating face significantly higher costs. The federal rental price index rose just 1.1% year-over-year in May, the smallest increase in five years, but UBS projects a rebound to 1.5% annual growth in 2026 and 2027.
The delayed transmission of policy changes to rents stems from the reference rate’s construction. The rate reflects the average interest on outstanding mortgages, where newly issued loans carry limited weight. As a result, shifts in the mortgage market take time to filter through. UBS expects the reference rate to remain stable until at least late 2027, when it forecasts a rise to 1.5%. This would require the average mortgage rate to increase by at least seven basis points—a threshold not expected to be met before then.
A 0.25 percentage point increase in the reference rate could enable landlords to raise rents by up to 3%, according to UBS. The bank’s baseline scenario assumes gradual normalization of Swiss monetary policy, with the SNB expected to deliver its first rate hike—25 basis points—in June 2027. By mid-2027, longer-term mortgage rates are projected to rise by 10 to 20 basis points, depending on the loan term, while the policy rate remains at zero through year-end 2026 before reaching 0.25%.
UBS also modeled two alternative scenarios. A sharp escalation in geopolitical tensions, particularly in the Middle East, could push energy prices higher and accelerate rate hikes, lifting the reference rate to 1.5% by mid-2027. Conversely, a global recession paired with renewed appreciation pressure on the Swiss franc might push the SNB back toward negative rates, though UBS considers this increasingly unlikely. Even in that case, the reference rate would remain at 1.25%, with a further decline to 1% deemed highly improbable.
