The mortgage yield curve has been trending upwards for five months. Have we entered a new era after years of low interest rates? What might be the repercussions? Here are some answers.
Rates are on the rise again
Mortgage rates, all durations combined, reached 1.27% on average in April (excluding fees and insurance), according to the Observatory Credit Housing / CSA. They were at 1.06% last December. However, we remain at 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 the 5% recorded at the end of 2008. But the current rise should not stop there.
Rates could reach 1.75 to 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 rose 4.8% in April year on year. To slow the outbreak, the European Central Bank (ECB) intends to increase its “key rates” this summer.
These are the rates at which it lends to banks, analyzes Philippe Crevel, the director of the Cercle de l’épargne.
Today they are at zero. By increasing them, the ECB will curb credit, therefore slowing economic activity, which means less demand for raw materials, therefore lower prices. But this will have repercussions for real estate.
To finance themselves with the ECB, the banks will pay more, continues Philippe Crevel.
They will therefore demand a higher interest rate from borrowers.
Rates will catch up with inflation
Theoretically, interest rates should equal inflation, in order to avoid an erosion of loan capital.
In fact, the rise in rates will be very gradual, believes Michel Mouillart.
Otherwise, the risk would be to completely halt growth. In addition, the ECB anticipates an easing of inflation in 2023. It would be around 2%. In the meantime, interest rates are expected to remain well below inflation this year,
something that hadn’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 the banks do not reason only in terms of rates,nuance the moderator of the Observatory Crédit Logement/CSA.
They must also comply with the new rules of the High Council for Financial Stability, under Bercy. From now on, the repayment of loans must not exceed 35% of income.
However, a third of the borrowers supported a rate of effort higher than this rate. To get into the nails, banks require increasingly high personal contributions. Some households can therefore no longer carry out their project: low-income households, families with children, young people seeking home ownership, etc. Added to this is inflation, which is eating away at purchasing power. So much so that the number of loans granted fell by 14.5% in April over one year.
Borrowers are getting better off
If the number of loans granted falls, the volume lent remains on the rise. 25.1 billion euros in new loans were granted in April against 24.8 billion in March, according to the Banque de France. In other words, there are fewer buyers, but they buy bigger and more expensive.
The share of wealthier households is increasing,” notes Michel Mouillart. So the market is booming.
The appetite for stone is not over, write the notaries.
The shortage of goods for sale shows this. Old property transactions (1.2 million over twelve months) stabilized at a high level. And prices are rising: +4% for apartments and +10% for houses over one year.