Blow up interest rates and contributions: the end of a soft mortgage?

Blow up interest rates and contributions: the end of a soft mortgage?

Historically low interest rates, zero-contributory purchases, and flexible indebtedness regulations, the real estate sector is starting to emerge from a good few years ago. But in recent months, everything has changed, and it is becoming increasingly difficult for some families to obtain a loan to purchase a property. The end of soft credit?

Is this the right time to buy? This is the question that everyone looking to own a property asks. This period is especially favorable for interrogation. For several months, credit rates, long at historically low levels, are on the rise again. And not a little.

The upward trend is here to stay

“On January 1, 2022, we were averaging 1% for a loan over 20 years,” recalls Cecile Rockellor, director of studies at brokerage Empruntis. Today, we’re at 1.35% and it’s not inconceivable that we’ll hit 1.5% before the summer. The rates vary by banks. Some decide small increments each week, others adjust infrequently but in a more exciting way.”

Because the bullish momentum must continue. Several reasons could explain this. First, the increase in the cost of funds for banks. “Government loans have exploded and this is affecting loans. In addition, the European Central Bank has announced that it wants to increase interest rates. So we are only at the beginning of a cycle,” notes Cecile Rockellor.

“For the maxed out buyers, this is the axe”

How high can the price go? It’s hard to predict. “Il est possible que l’on atteigne les 2% d’ici la fin de l’année, se projette Pierre Chapon, cofondateur du courtier Pretto. Quant à des taux à 3% à plus long terme, ce n’est plus de Science Fiction.”

If the situation remains too favourable, according to credit experts, things could nonetheless get complicated for first-time buyers and families with more fragile finances. “Loans without contribution are much rarer and the amount required by banks has increased by about 10% in recent months, points out Pierre Chabon. Above all, a mandatory ceiling on the debt ratio is now set at 35%. Until now, it was a recommendation, but today the banks have Less flexibility. For grabbers who were at the limit, that’s the axe.”

Towards a fall in real estate prices?

In the context of a sharp rise in prices, the dynamics of the real estate market may slow down in the coming months. Pierre Chabon explains that “the sector operates in cycles. In general, when credit rates are low, prices increase. And when they rise, the value of goods stabilizes or falls a little.”

Nothing to worry about however for those who have the means to buy. “The situation has gone from ideal to very good, I want to believe Cecil Rockellor. Banks maintain very ambitious policies in terms of acquiring new customers. For them, the best way to get them back is with mortgages. Despite this, loan rates have increased. And it’s still well below inflation, so borrowing is still an interesting process.”

A price increase: What is the impact on your cost of credit?

For a loan of 170 thousand euros over 20 years, here is the effect of the evolution of the borrowing rate:

  • rate 1% :
    • Monthly payments excluding insurance: €782
    • Credit cost excluding insurance: €17,637
  • 1.35% :
    • Monthly payments excluding insurance: €809
    • Credit cost excluding insurance: €24,077
  • rate of 1.5% :
    • Monthly payments excluding insurance: €820
    • Credit cost excluding insurance: €26,879
  • rate of 1.7% :
    • Monthly payments excluding insurance: €836
    • Credit cost excluding insurance: €30,654

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