Real estate credit: will interest rates continue to rise?

Real estate credit: will interest rates continue to rise?

(Photo credits: © Monster Ztudio - stock.adobe.com)

(Photo credits: © Monster Ztudio – stock.adobe.com)

1.88%: This is the average interest rate on a mortgage in September according to the CSA Housing Credit Observatory. A much higher figure than last year… until when?

By Money Vox,

Although interest rates on mortgage loans have been particularly low for several years, their increase worries the French and the real estate world. In a context of inflation and uncertainty, the European Central Bank has in fact raised its reference rates, which has caused an increase in the rates charged by banks. Consequently, loans become more expensive and households’ debt capacity suffers. Update on the current situation in detail.

Some interest rates have doubled in just one year

In September 2021, the average interest rate on mortgages, all terms combined, was 1.04%. The CSA Housing Credit Observatory, at the origin of this figure, renewed its analysis in September 2022. Result: now it is necessary to count 1.88% on average for a mortgage, all durations combined.

In detail, the average rate on loans granted for 25 years is now 1.98%, compared to 1.16% for the same period in 2021. At 15 and 20 years, the situation is even worse, with interest rates having doubled. interest in the space of a year. More than 15 years, now we must count 1.74% and 1.88% more than 20 years.

And the most modest households are not the only ones affected by this increase. This is the entire market, directly related to the rise in reference rates by the European Central Bank (ECB), and in particular the 10-year OAT index. This indicator serves as a reference for banks to determine the interest rates they can charge. What was behind the ECB’s decision? Inflation, which reached 5.6% per year in France and 10% in the euro zone as a whole.

Also read: Real estate credit: extending the return period is no longer enough for them to accept your file

Will Mortgage Rates Go Up Indefinitely?

Many French people ask this question. The future borrowers, first of all, who legitimately fear for their borrowing capacity, but also the real estate world, which runs the risk of finding itself faced with a market that works in slow motion. According to projections from the CSA Home Credit Watch, the average rate on mortgages, all durations combined, could reach as high as 2.80% in June 2023, up from 1.88% today. However, this trend should gradually reverse to reach 2.45% by the end of 2023, and then some stability in 2024.

These quantified elements continue to be projections closely linked to the evolution of the French and European economic situation, as well as to inflation. Meanwhile, borrowers do not have expandable borrowing capacity, especially given high real estate prices. Therefore, they can choose to borrow over a longer period, with a maximum of 25 years in most cases. The average duration of the loans granted thus stood at 20.3 years in the third quarter of 2022, compared to 13.6 years in 2011.

Another option: buy a smaller property. Indeed, for the Observatory, “this extension is no longer sufficient to offset the consequences of the rise in housing prices.” Thus, in one year, the area that a household can acquire has been reduced by an average of 4 m². However, this situation could well change in the coming months. In fact, with future owners’ reduced borrowing capacity, current sellers may be forced to lower their requirements, which could lead to lower property prices. Rating agency Moody’s comes to a similar conclusion: “As mortgages become more expensive, demand for homes will fall, likely leading to a decline in home prices after several years of growth.”

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