Why Mortgage Rates Should Continue To Rise This Year

Why Mortgage Rates Should Continue To Rise This Year

The increase is noticeable. Between the beginning of February and the end of March 2022, the average rate of mortgages offered by French banks rose by 0.25 points to 1.3% over 20 years. The first since July 2020. The rally could continue in the coming weeks.

In question is the increase in interest rates on French state loans, also known as obligations derived from Trésor (OAT). “It now exceeds 1% (the 10-year rate, Ed), which has not happened in several years, explains Cecile Rockellor, director of studies at broker Empruntis. This means that money is becoming more expensive for the state. To determine mortgage rates, the banks themselves rely on the price of OAT.

Prices may continue to rise

If the European Central Bank (ECB) maintains its key rates for the time being, the institution led by Christine Lagarde does not rule out increasing them before the end of 2022 in order to counter inflation. This will have the effect of raising the mortgage rates offered by banks a bit more in the coming months.

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In the face of this increase in the cost of money, banks are committed to increasing their mortgage rates in order to maintain their margins. “Banks have to raise their rates to keep making money, but they can’t stop the market either, as Cecile Rockellor explains. That is why the rise in credit rates must remain moderate.”

lower rates of inflation

On the contrary, the war in Ukraine has little effect on mortgage rates. “For the time being this war remains an internal conflict that should not spread to other countries,” says Maille Bernier, a spokesperson for Meliorto. Fortunately, the situation has begun to subside, and markets have not been affected. The consequences remain minimal.

According to Empruntis’ forecast, the cost of a loan (excluding insurance) of 200,000 euros over 20 years obtained at the current rate (1.30%) is 27,233 euros, compared to only 20,749 euros for the same loan obtained in January 2022.

If this rise in interest rates could complicate the most modest household’s access to credit, Mile Bernier remembers that borrowing at this time is still interesting. “Rise rates should be put into perspective,” she says. Inflation, which is around 3%, is still above interest rates. An individual who takes out a mortgage at the current rate of 1.30% borrows at a negative rate.

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