Since January 2014 we have witnessed a dramatic fall in borrowing rates. The cause? A downward trend in bond rates which determine the refinancing capacity of banks and therefore the setting of borrowing rates. Consequences? We have lived through the era of credit renegotiations and a rush of candidates to buy real estate. This steady decline for almost three years has boosted real estate purchasing power. For the first time in many months, the trend has been reversed and a slight increase has been noted. Would the rate cut be over?
Many taxpayers have benefited from lower rates
In early June rates continued to drop. Over all durations combined, the average rate fell to 2.01% against 2.03% in April. Average rates therefore posted new records despite the 0.1% increase in a French banking network. The general trend has not been altered.
Over 15 years the average rate was 2% and 2.23% over 20 years. Over 25 years, the average rate remains stable at 2.6%. According to estimates, on average 520 euros were saved per year net of tax compared to May 2012 for four million owner borrowers (1.5 million) or loan renegotiators (2.5 million).
The fall in mortgage rates helped French households earn at least 2% more disposable income in 2014. We will surely have a slight rise in rates which will be gradual but the French should continue to go into debt inexpensively throughout this year.
The rate hike?
Some banks have decided to increase their rates as of June. A famous bank (very fond of humorists) started in May by slightly increasing these rates by 0.10%. Some followed with slightly higher increases of 0.20 and 0.25%. Other rate committees will be held and will surely announce the start of this upward but still reasonable trend.
How do we explain this increase? The reason is simple. Banks set their rate grids based on government bond rates (OAT). While these OATs were low or almost zero for some at the start of 2015, last May, a rebound appeared. Due to tensions over Greece, French rates doubled in a few weeks and have gone from 0.35% at the end of March to 1.35% today.
With these unfavorable conditions for borrowing, banks automatically raise their rates. The rise in key interest rates systematically puts an end to the fall in the borrowing rates granted by banks to individuals. However, it should be noted that the banks do not envisage an unreal rate hike. The scenario retained would be that of a rate stabilization at all banking establishments. Despite a certain increase in OATs, they nevertheless maintain comfortable margins on mortgage loans. They will therefore continue to offer attractive rates to our taxpayers.
Banks collapsed under credit requests
Every month requests for credits, renegotiations or redemptions explode in banks. Spring is generally the best time of the year for real estate transactions. Add to that attractive loan rates, so demand may continue to grow.
Banks will therefore continue to be overwhelmed with requests and this dynamism creates certain traffic jams in the banks. The response times for housing loans are greatly lengthened and the banks are completely overwhelmed by the pace. It should be emphasized that the responsiveness of a bank is essential. The usual deadline for financing on a promise to sell is 45 days.
Even if it can be extended, it is in the purchaser’s interest to turn to a fast bank so as not to miss the transaction. The slight increase in rates would therefore make it possible to slightly decrease the requests and therefore to reduce the workload of the study and back office teams. A rise in rates to gain speed is the new wish of banks whose loan services are congested.
Despite this slight increase, borrowing rates should stabilize by the end of the year. A meteoric rise in rates is unlikely. Home loans should therefore remain cheap for some time. It is therefore the right time to carry out your real estate project. The alliance of a tax-free property investment or profitability and attractive rates are the result of a successful investment.