High credit rates put the purchasing power of real estate under pressure

High credit rates put the purchasing power of real estate under pressure

Banks have been raising their rate schedules for several months, sometimes very sharply.

It seems that the era of record low interest rates is already overdue. The increase observed in recent months is accelerating in an unprecedented manner. The upward trend in interest rates started last December. But so far this has been done in a relatively gradual manner. This time things are accelerating at a pace we did not know about.

Broker Vousfinancer attests to this. “A regional bank increased one of its scales by 0.57% in a month. I’ve never seen that before,” confirms Sandrine Allonier, director of studies. Concretely, for good profiles, this bank just increased its credit over 20 years from 1% to 1.57%. For the worst borrower profiles, we went from 1.25% to 1.62% over the same period. Another symbol: a national bank this time exceeded its 25-year credits above the 2% mark for less affluent households.

According to Vousfinancer, average prices are now shown on average: 1.2% over 15 years, 1.35% over 20 years, and 1.55% over 25 years. In January, these averages (again according to the median) were 1% consecutively over 15 years, 1.15% over 20 years, and 1.40% over 25 years.

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The effect of these increases on the total cost of credit is far from negligible. For example, with a loan of 300,000 euros over 20 years, from 1% interest to 1.5%, the loan will eventually cost the borrower more than 16,300 euros. For families borrowing at their maximum capacity, this means less purchasing power for real estate. Let’s take another example: a married couple who earns 4,000 euros net taxable and borrows more than 25 years. With a debt ratio of 35% (including insurance), they can therefore receive a monthly payment of 1,400 euros. With rates of 1.4% (and insurance at 0.4%), they can borrow about 327 thousand euros. If the rate rises to 1.6% (and the insurance remains at 0.4%), that amount drops to around €319,000. Or 8000 euros less than the budget to buy. With bigger increases or bigger budgets, it quickly reduces 10,000 to 20,000 euros.

Overheated banks

However, this general upward trend in interest rates. All banks in one way or another are in the process of raising their balances for a period of 3 or 4 months. But it is clear that they do not all do it at the same rate or in the same proportions. The general observation on the part of brokers is that they are very concerned about the position to adopt in such a climate of uncertainty, between the war in Ukraine and the monetary tightening initiated by the Federal Reserve and the European Central Bank. In Empruntis, Cécile Roquelaure says that some banks have also decided to double rate committees, these meetings that are traditionally held once a month to work out the policy to be adopted on mortgages. Some institutions now choose one commission per week. This means that there is no vision for the banks.

However, we at Empruntis remain somewhat optimistic: “Banks certainly want to recover their profit margins on mortgages,” admits Cecile Rockellor. “But they both have different interests at different times. So there are still more banks in the price stabilization stage.”

Someone could agree, according to Cecile Rockellor, to smaller cuts in the coming weeks. Because another topic is starting to rise: the cost of energy in the family budget. To avoid excluding certain households from credit, some banks may be tempted to adjust the interest rate increases they have planned.

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