Real estate credit: rates at the highest levels, will the 3% threshold be exceeded soon?

Many prospective buyers can no longer afford a house or apartment due to ever-rising interest rates. (©Illustration / Le Démocrate Vernonnais Archive)

The ascent phase home loan interest rates is in active operation. Faced with the European Central Bank’s key rate hike, which hasn’t ended due to runaway inflation, banks are raising mortgage rates.

The 2% bar is exceeded and, as of mid-November 2022, it is almost impossible to obtain credit below this level for a loan longer than 15 years. A record for seven years.

In October 2021, the average rate granted over 20 years was 0.99%, according to the Credit Housing Observatory / CSA. It comes from the past.

The most penalized are new buyers and low-income families, who have very little room for maneuver with still high property prices. And if some brokers are to be believed, rates could even exceed the symbolic 3% on average for a 20-year loan in 2023.

What are the current rates?

On average, mortgage rates reached 2.05% in October 2022, adding up all the terms, according to the CSA Housing Credit Observatory (1.92% over 15 years, 2.06 over 20 years and 2.17 over 25 years).

A barometer of property rates in Normandy, in November 2022.
A barometer of real estate rates charged by banks in Normandy, in November 2022. (©DocumentActu.fr)

What are the terms of the loans?

As a result of these increasingly high rates, in October 2022 the lengthening of the average duration of mortgages granted continued (244 months on average, or 20.3 years, “a level never observed”, according to the Observatory). The average duration of French mortgages in 2011 was 13.6 years.

Today these (long) durations are no longer always sufficient to compensate for the consequences of the increase in house prices or to cushion those of the increase in the personal contribution requested. Many files are readapted to the bank.

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In order to comply with the requirements of the High Financial Stability Council (HCSF), banks are forced to drastically limit the number of applications that can exceed 35% of the debt-to-GDP ratio and with a loan term of more than 25 years.

Rising interest rates necessarily lead to an increase in monthly repayments, and many files are therefore out of the nails. And behind this difficulty, according to many real estate specialists, there is still a still too low housing volume, which still keeps purchase prices high.

What’s the matter with the wear rate?

The toast is given to families with minimal or no contributions who have plans to purchase a house or an apartment. A higher fee means higher monthly payments and therefore the risk of your file being rejected.

The usury rate? It corresponds to the maximum legal interest rate that credit institutions are authorized to apply when granting a loan. It is intended to protect borrowers.

It is the Banque de France that takes care of the quarterly calculation of this rate beyond which it is forbidden to lend money in France. The latter raised it in October 2022. It is at 3.05% for loans with a duration of 20 years and more… Which takes into account the interest rate of the credit, the insurance and all the attached costs .

The next review of the usury rate will take place on 1 January 2023. To unblock the situation, he could decide to raise the usury rate, and therefore authorize the disbursement of heavier loans for families, but raising it now is, in fact, a risk for the financial stability of the banking sector.

Many professionals in the sector are asking for a review of the method of calculating this usury rate, which would change more often, every month for example, which would better adapt to the reality of the market.

Will interest rates rise further?

Real estate brokerage professionals predict further increases in interest rates in France in the coming months. These could exceed the 3% threshold in the first part of the year and then probably decline gradually. A crisis which is not specific to France, but which also affects other countries such as the United States where the interest rate currently exceeds 7%.

“In France, the average nominal rate, adding up all the terms, was 2.05% in October, estimated news.fr, Caroline Allorant, Deputy Director of Development and Communications at Crédit Logement, a finance company specializing in guaranteeing real estate loans to individuals distributed by banks. It was 2.06% for loans with a 20-year term. »

The trend in rates currently forecast is that proposed in the latest scenarios presented in October, which envisaged a landing of around 2.40% at the end of 2022. Rates will continue to rise in 2023, but at a slower pace. According to these same scenarios, they are expected to reach 2.80% in June 2023.

Caroline AllontDeputy director of the development and communication department of Crédit Logement

Meanwhile, in the third quarter of 2022, the number of home loans granted decreased by 27.7% compared to the third quarter of the previous year, the Observatory found a few days ago.

The most impressive decline occurred between August and September, when loans fell by 34.7%. This slump has been directly linked to this notorious churn rate, responsible for stalling nearly half of mortgage applications in 2022.

Financial institutions are clearly being cautious, as the profitability of home loans has melted away in recent months. But the valve is not completely closed. The first piece of advice given by industry experts is not to be discouraged by a refusal and to turn to more banking institutions.

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