Real estate loan.  Will the rise in interest rates continue?

Real estate loan. Will the rise in interest rates continue?

On average, mortgage interest rates reached 1.88% in September, all maturities combined. A sharp increase compared to 2021, where the CSA Credit Housing Observatory had calculated an average rate of 1.04%.

At 15, 20 or 25 years, no financing term is released due to the rise in rates. A context that makes it difficult to access property, with the rise in interest rates reducing the debt capacity of households. How will the real estate market evolve in the coming months and years?

Also read: Real estate: “The problem is not the rise in credit rates but the lack of housing”

Sharp rise in interest rates in 2022

For borrowers, the year 2022 marks a change. After years of low interest rates, banks have begun to improve their financial conditions. In question ?

Mainly inflation, which led the European Central Bank (ECB) to raise its reference rates. Banking organizations had no choice but to follow the trend. As a reminder, French inflation stood at 5.6% p.a. in September 2022. A high figure, but still well below the level of price increases seen in the eurozone, 10% over the same period.

The result of the rise in the ECB’s reference rates was not long in coming. While the average interest rate on a mortgage, regardless of its duration, was 1.04% in September 2021, it reached 1.88% in 2022, an increase of more than 80%. And during certain durations, the increase was even greater. Thus, in 15 years, real estate rates have doubled (1.74% in September 2022). Same scenario for 20 years (1.88%).

While this was quite possible last year, borrowing below 1% is now impossible, because this increase affects not only the most modest French, but all borrowers, even those with the best records. . And for the next few years, the Observatory is betting on an average rate that rises to 2.80% in June 2023, followed by a slight fall to stabilize at 2.45% at the end of next year.

What are the consequences of a rise in interest rates?

The increase in rates relating to real estate loans has various consequences. Borrowers First: Significantly reduces your borrowing capacity. In order to comply with the requirements of the Higher Council for Financial Stability (HCSF), banks are forced to drastically limit the number of files that can exceed 35% of the borrowing rate and with a loan period of more than 25 years. .

The increase in interest rates necessarily leads to an increase in the monthly payment and therefore some files are off the nail. Therefore, two solutions are presented: reduce the amount borrowed or extend the duration of the financing. According to the CSA Housing Credit Observatory, the area of ​​goods that the French can acquire has been reduced by 4 m². Regarding the second option, regarding the extension of the funding period, the Observatory is clear: “This extension is no longer enough to offset the consequences of the rise in housing prices”.

In fact, the rise in interest rates occurs in a context of particularly high real estate prices. As proof, the French have had to greatly extend the duration of their mortgages over the years, going from 13.6 years on average in 2011 to 20.3 years in 2022. But the coexistence between high interest rates and prices real estate at its highest point should not last according to rating agency Moody’s: “As home loans become more expensive, demand for homes will decline, likely leading to a decline in home prices after several years of growth”.

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