The ECB raises rates: what future for mortgages and savings products?

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  • The ECB raises rates: what future for mortgages and savings products?

Published on September 20, 2022

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Written by Natacha Picmal

thematic: Credit

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An important first since the European Central Bank was created: it has decided to raise the reference rates by 0.75 points. A real thunder in the world of economics and finance, but a decision that seemed inevitable, to try to reduce the inflationary phenomenon that has caused prices to soar in recent months across Europe. Quite far from the considerations of the French, this change will still have several direct impacts on their daily life. Let’s go back in detail to what this key rate hike will entail in the coming weeks in Europe and France.

Inflation down in the coming months?

If he had already chosen to do soraise its key rates of 0.50 points in July, the ECB finally decided to repeat this Thursday 8 September announcing a further increase of its rates of 0.75 points. A historic decision which intervenes with the purpose of stop uncontrolled inflation. In August, its one-year increase was estimated at 9.1% on a European scale, far from the 2% target that should be maintained by the ECB. It has long been reluctant to raise the level of its key rates further avoid triggering a recessionthe institute seems to have finally been forced to take the plunge, trying everything maintain the cost of living to an acceptable level.

Consequently, it is therefore necessary preparein the next months, a sharp slowdown in the economy of the entire area EUR. Whatever the type of credit required, this it will cost more to the taxpayer, reducing so strongly borrowing capacity families, with the final consequence of stop requests many individuals. If this mechanism can, in all likelihood, help the euro zone find a much more acceptable level of inflation (8.3% forecast for 2022, 5.5% for 2023 and 2.3% for 2024), risks plunging the countries concerned in full recession.

Will France go into recession?

In fact, in the increasing its key rates and so we prepare reduce credit production on a European scale, the ECB is very likely to do so slow down the consumption of the Old Continent. With fairly weak growth in recent months, there is therefore a significant likelihood that a good number of countries, including France, will come into play. recession.

A clear choice, however, by the ECB to try to preserve some of the purchasing power of European families. In addition to that, it would also seem that by opting for this solution, the institution has the idea of revalue the euroto do it again a strong currency. Currently trading in 0.99 centsthe weakness of the European currency in no way helps the sharp rise in prices in the euro zone, most of the imported products be paid in dollars. By regaining strength against the dollar, the currency could also reduce the bill for Europeans, therefore relative to imported products, and even more so in the energy sector.

Will mortgage rates continue to rise?

If the ECB’s key rate hike is about to impact loan production globally, this is all the more the case on the part of the ECB. real estate loans. Indeed, it is directly with the ECB that the banks intended for the general public stock up on cash. But if this money costs more to commercial banks, these will necessarily be pass it on on their clients, offering real estate loans themselves higher rates. In many European countries, where variable rate loans are the norm, borrowers will do so gradually see their monthly payments increasesometimes reaching up to nonpayment. On the side of France, fixed rate loans being a legion, there is little to fear on that side. For some banking networks, however, the mortgage is already considered too unprofitable. The instructions are therefore clear: stop lending money for this type of project until the situation stabilizes.

Future French buyers, who embarked on a purchase project a few months or weeks ago, are no longer fooled. They got it the end of easy money it was done well and truly. Rising steadily since the beginning of the year, mortgage rates, which had reached their lowest level ever, are now close 2% on average for longer durations. Approaching so dangerously to the wear rate (currently set at 2.57 for loans aged 20 and over), many practices can no longer be accepted by banks.

Even if the bank loan is firm cheap when you want to invest in real estate, it is therefore essential, in the coming months, to do so prepare your funding folder much more carefully than before, being accompaniedfor example, from to brokerwho will be able to pull all strings to present the strongest possible case to the banks.

Life insurance, Livret A, PEL… good news for their holders!

On the savings side, however, this rate hike announced by the ECB is more similar Good news. Indeed, for those who care funds in euroscomposed mainly of loans issued by stateswithin their life insurance contractstheir wage rates should gradually increase.

The same goes for other savings products such as Livret A, for example, or Livret de Développement Durable et Solidaire (LDDS). If the latter’s salary was 1% on February 1, 2022, it has already risen to 2% on August 1. On February 1st, it should finally reach 3%. Why such an increase in such a short time? Simply because the calculation of remuneration of these products is carried out every 6 months, taking into account the average between level of inflation (excluding tobacco) e€ STR, a rate published every morning by the ECB and reflecting the unsecured borrowing costs of euro area banking institutions on a daily basis. Therefore, as the ECB has decided to raise the reference rates again, the same will happen automatically for the banks, thus causing a rise in the € STR. Not to mention the level of inflation, expected to be over 8% by the end of the year.

From the part of ELP, the mechanics will be basically the same. Indeed, the way in which its rate of return is calculated depends, again, on the rates that are preparing to increase after the announcement of the ECB. Fixed at 1% since August 2016, it is pay rate so it should Double in the next weeks.

In summary

  • The ECB marked its history on 8 September last increasing its key rates by 0.75 points. Never seen.
  • This decision was made by the institution with the aim of drastically reduce the level of inflation in the coming months and then keep some purchasing power for Europeans in the euro area.
  • However, this mechanism risks bringing down many eurozone countries recession.
  • This ECB rate hike will have positive and negative impacts on the daily life of the French : rising mortgage rates, but also rising interest rates for many savings products.

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Natacha Picmal


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