Housing Credit Observatory: The rise in mortgage rates has accelerated

After a very moderate rate hike at the beginning of the year, the rate hike was fastest for three months. The decline in the market is confirmed and the share of households grows according to the May Crédit Logement / CSA Observatory.

Rate hikes have accelerated in an uncertain economic environment

After a very moderate rate hike (4bps) in the first two months, the rate hike has since been much faster: +28bps in three months, to 1.38% in May 2022.

In a context of heightened international financial tensions since the outbreak of the war in Ukraine, the increase in the average rate remains well below that of inflation (+ 139bps) or 10-year OAT (+ 146bps) since December 2021.

Faced with demand weakened by the loss of purchasing power, rising house prices and the war in Ukraine, banks have limited the increase in lending rates. The abundance of low-cost savings resources and the refinancing conditions offered by the ECB have so far facilitated the implementation of this strategy.

Since December 2021, loan rates have all increased by at least 36 bps. And this regardless of their duration at the time of the grant. All categories of borrowers were concerned. Although the rise was somewhat slower for more modest borrowers. All borrowers benefit from loans at rates well below inflation, which has not been seen since the late 1950s.

Credit conditions are being stretched to cope with rising prices and contribution rates

As of May 2022, the average loan term was 240 months. The lengthening of the durations made it possible to mitigate the consequences of the increase in house prices and the increase in the advances requested. In this way, the effort ratios of new borrowers can be kept below the 35% threshold imposed by the banking supervisory authorities. For loans for the purchase of the main residence, 65.3% was granted in May over a duration between 20 and 25 years: the relative weight of this range of durations is still increasing to levels never seen before in past.

Market deterioration in a tense international context

The number of loans granted has weakened since the beginning of 2022, as demand reacted to the deterioration of its purchasing power, while credit conditions have no longer improved in the context of the HCSF recommendations. The outbreak of the crisis in Ukraine reinforced inflationary pressures and their impact on loan rates, while household morale dropped sharply. This further shock on credit demand turned into a deterioration in the market that until then seemed only a simple slowdown.

Transformation of the market in favor of the wealthiest families

Since last March, the transformation of customers has been more marked in an anxious period with a sharp deterioration in the morale of families. For many households, access to credit is more complicated, given the inflationary environment and the needs of the HCSF. The share of wealthy households is strengthening (borrowers’ incomes have grown rapidly with + 4.3% since the beginning of 2022, year on year, compared to + 1.7% in 2021) and they are carrying out more ambitious projects. The cost of the operations carried out is therefore strongly increasing (+ 8.4% from the beginning of 2022, year on year, compared to + 4.6% in 2021). Under these conditions, the related cost in May 2022 stood at 4.8 years of income. At the same time, the level of personal contributions is still increasing (+ 13.8% from the beginning of 2022 year on year after + 12.8% in 2021). But this development illustrates the ongoing transformation of the credit market and, according to the Credit Housing Observatory, risks weakening its dynamics.

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