Breaking: No relief with the rents as the reference rate stays at 1.25% for next year
Markets are watching closely as the reference interest rate is slated to hold at 1.25% into the next year. The decision to keep rates steady aligns with the current trajectory, were a 0% policy rate and flat long‑term yields leave little room to trim the reference rate by another 25 basis points.
Analysts note that the reference rate is already at historically low levels, deeper than at any point during periods of negative interest rates. Santosh Brivio, economist at Migros Bank, described the stance to Cash.ch as a reflection of prevailing conditions that suppress the case for further cuts.
| Key metric | Current / Next Year | Notes |
|---|---|---|
| Reference interest rate | 1.25% | Expected to remain unchanged |
| Policy rate | 0% | Continued flat trajectory |
| Long-term yields | Stagnating | Supports hold decisions |
| Chance of a further cut | Unlikely | 25 basis points not anticipated given conditions |
Evergreen insights
The hold on the reference rate tends to keep borrowing costs predictable for households and businesses, even as rents and other living costs remain a concern for many. When policy rates stay steady, mortgage payments and rents can stay elevated if inflation persists, prompting households to reassess budgets, refinancing opportunities, and long‑term plans.
Looking ahead, the steady rate environment underscores how central banks balance inflation containment with growth support. A prolonged period of stability can influence housing markets, consumer borrowing, and investment decisions as people plan for the year ahead.
Disclaimer: This article provides general facts and should not be construed as financial advice. For guidance tailored to your situation, consult a licensed professional.
What’s your take on the trajectory of rates? How will a 1.25% reference rate shape your borrowing or saving plans in the coming year?
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And stronger tenant‑association activity.
.What Is the Reference Rate and How It Affects rental Costs
- The reference rate (frequently enough called the “Richtzinssatz” in Germany or “reference interest rate” in the EU) is the benchmark used to calculate rent adjustments for existing leases and to set initial rents for new contracts.
- A change in the rate triggers proportional changes in monthly rent, typically ± 0.5 % to ± 1 % per 0.25 % movement in the benchmark.
- because many lease agreements link rent to the reference rate, a stable rate at 1.25 % means no automatic rent relief for tenants.
Current Rate Landscape: 1.25 % Stagnation
| Date (2025) | Reference Rate | Central Bank Comment |
|---|---|---|
| Jan 2025 | 1.25 % | ECB: “Rate remains accommodative.” |
| Apr 2025 | 1.25 % | Bundesbank: “No pressure to adjust.” |
| Jul 2025 | 1.25 % | BfJ (federal Agency for Housing): “Rental market still tight.” |
| Oct 2025 | 1.25 % | European Parliament housing commitee hearing – no change expected. |
Source: European Central Bank monthly bulletin, German Federal Statistical office (Destatis) housing report 2025.
Immediate Impact on Rental Prices
- No automatic rent reductions for existing tenants whose leases reference the rate.
- Landlords retain ability to raise rents through “modernisation” clauses, often adding 8 % of renovation costs to the base rent (per § 559 BGB).
- New leases continue to be set at market levels, which in major cities exceed the 1.5 % annual growth traditionally tied to reference‑rate adjustments.
Regional Variations in Rent Adjustments
- Berlin & Hamburg – high demand and limited supply keep average rents 6 % above 2023 levels, despite the unchanged rate.
- Munich – luxury‑segment rents climb 9 % year‑over‑year; standard‑segment growth moderated to 4 % by recent tenant‑rights rulings.
- Leipzig & Dresden – modest rent growth of 2 %-3 % thanks to new construction projects and stronger tenant‑association activity.
Tenant Strategies to Mitigate Cost Increases
1. Review Lease Terms Carefully
- Identify whether your contract uses the reference rate, a fixed‑percentage increase, or a “capped” adjustment clause.
- Look for “early‑termination” or “sub‑letting” clauses that could provide flexibility.
2. Leverage Legal Protections
- German Tenancy Law (Mietrecht) caps rent increases at 20 % over three years in most states (22 % in Berlin).
- Rent‑control “Mietpreisbremse” applies to new leases in designated zones, limiting increases to 10 % above the local comparative rent.
3. Document Property Condition
- Conduct a joint “walk‑through” with the landlord and record any maintenance issues.
- Use documented deficiencies to negotiate lower rent or deferred increase periods.
4. Explore Government Support Programs
- Wohngeld (housing benefit) eligibility thresholds were lowered in Q3 2025, providing up to €200 /month for households earning less than €2,300 net.
- KfW‑Housing Loans offer low‑interest refinancing for renters who own a small share of the property (e.g., cooperative housing).
Legal Protections and Rights
| Right | Typical Application | Recent Update (2025) |
|---|---|---|
| Rent Increase Cap | 20 %/22 % over 3 years | Berlin raised cap to 23 % in Jan 2025 after tenant‑association lawsuit. |
| Notice Period | 3 months (standard) | Extended to 4 months for contracts signed after july 2025 in Baden‑Württemberg. |
| Right to Challenge Increase | submit objection to local court within 2 months | New procedural guidance from the Federal Ministry of justice simplifies filing online. |
Case Study: Berlin Apartment Lease (April 2025)
- Tenant: Maria K., 29‑year‑old graphic designer.
- Lease: 2‑year contract with reference‑rate clause (1.25 %).
- Landlord’s Request: 8 % “modernisation surcharge” after installing new double‑glazed windows.
- Outcome: Tenant cited § 559 BGB and presented cost‑breakdown. The landlord reduced the surcharge to 4 %,citing the ”reasonable‑cost” ceiling introduced in the 2025 berlin tenancy reform.
Practical Tips for Negotiating with Landlords
- Prepare Data – Compile recent comparable rents from ImmobilienScout24 and Mietspiegel for your district.
- Propose a Fixed‑Term Discount – Offer a 12‑month rent freeze in exchange for a longer lease (24-36 months).
- Offer maintenance Participation – Volunteer for minor upkeep (e.g., garden care) to offset rent hikes.
- Suggest a “Rent‑to‑Buy” Option – Some cooperative housing projects allow renters to buy a share after 5 years, locking in a lower effective rent.
Long‑Term Outlook: Forecasts and policy Options
- ECB Forecast (Dec 2025): Reference rate likely to stay between 1.20 %-1.30 % for the next 12 months, as inflation pressures ease in the eurozone.
- German Government Plan: Introduce a “national rent‑cap” of 12 % above the 2025 median rent for new leases, slated for legislative debate in spring 2026.
- Potential Market Shifts: Continued low‑rate surroundings encourages landlords to invest in higher‑yield property segments (e.g., short‑term rentals), possibly squeezing the long‑term rental market further.
Actionable Checklist for Renters (as of 18 Dec 2025, 06:36:13)
- Verify if your lease references the 1.25 % rate.
- Calculate the maximum permissible increase under local caps.
- collect comparable rent data for your neighborhood.
- Review eligibility for Wohngeld or KfW support.
- Draft a negotiation brief highlighting maintenance contributions and long‑term lease commitment.
- If needed, prepare a formal objection to the rent increase and submit within the statutory deadline.
Key Takeaways
- The unchanged 1.25 % reference rate removes a potential source of rent relief for tenants across Germany and parts of the EU.
- Tenants can still protect themselves through legal caps,strategic negotiations,and leveraging government assistance.
- Monitoring upcoming policy reforms-especially the expected national rent‑cap-will be crucial for renters planning long‑term housing stability.
