The mortgage yield curve has been up for five months. Have we entered a new era after years of low interest rates? What could be the repercussions? Here are some answers.
Rates are rising again
According to the Credit Housing / CSA Observatory, mortgage rates, all maturities combined, averaged 1.27% in April (excluding taxes and insurance). They were at 1.06% last December. However, we remain on a level close to that of the last five years. Since the end of 2016, average rates have fluctuated between 1.35 and 1.05. Far from 5% at the end of 2008. But the current upside shouldn’t stop there.
Rates could reach 1.75-1.80% by the end of the year “, Calculates Michel Mouillart, an economist specializing in housing.
The rise in interest rates is due to inflation
Prices increased by 4.8% in April year on year. To slow the epidemic, the European Central Bank (ECB) intends to raise its “key rates” this summer.
These are the rates at which it lends to banks, Analyzes Philippe Crevel, director of the Cercle de l’épargne.
Today I’m at zero. By raising them, the ECB will hold back credit, thus slowing down economic activity, which means less demand for commodities, hence lower prices. But this will have repercussions on the real estate sector.
To finance themselves with the ECB, banks will pay more, continues Philippe Crevel.
They will then demand a higher interest rate from the borrowers.
Rates will catch up with inflation
Theoretically, interest rates should be equal to inflation in order to avoid an erosion of the loan capital.
Indeed, the rate hike will be very gradual, believes Michel Mouillart.
Otherwise, the risk would be to stop growth completely. Furthermore, the ECB expects an easing of inflation in 2023. That would be around 2%. Meanwhile, interest rates are expected to remain well below inflation this year,
something that hasn’t happened since the 1960s.
The number of credits increases
Considering rates below inflation and the prospect of them rising, however slowly, over the course of the year, it is better to borrow now than later.
But banks don’t think only in terms of interest rates,the moderator of the Crédit Logement / CSA Observatory fades.
They must also comply with the new rules of the High Council for Financial Stability, under Bercy. From now on, loan repayments should not exceed 35% of income.
However, one third of borrowers incurred an effort rate above this rate. To get to the heart, banks require ever higher personal contributions. Some families, therefore, can no longer carry out their project: low-income families, families with children, young people seeking home ownership, etc. Added to this is inflation, which is consuming purchasing power. So much so that the number of loans granted decreased by 14.5% in April over a year.
Borrowers are improving
If the number of loans granted decreases, the volume lent remains on the rise. According to the Banque de France, 25.1 billion euros of new loans were granted in April compared to 24.8 billion in March. In other words, there are fewer buyers, but they buy bigger and more expensive.
The share of wealthier families is increasing “, observes Michel Mouillart. So the market is booming.
The appetite for stone is not over, write to the notaries.
The scarcity of goods for sale proves this. Old real estate transactions (1.2 million in twelve months) have stabilized at high levels. And the prices go up: + 4% for apartments and + 10% for houses in one year.