Since the beginning of the year, the rise in mortgage rates has been very brutal. Interest rates are still very low in January, rising 50 basis points after accelerating in March and April linked to a sharp rise in bond prices (the 10-year OAT). In short, while we could still easily fund ourselves at 1% over 20 years ago a few months ago, banks are now offering 1.5% and this upward movement is likely to continue because inflation there is involved through direct influence on monetary policies that they have no other solution than to raise prime interest rates.
In the face of real estate prices that have risen significantly in recent years, higher interest rates will automatically disqualify more borrowers who are above the 35% debt ratio when they do not have the possibility to extend the term of their loan (up to a maximum of 25 years in the old) or to mobilize additional contribution. This is especially the case for first-time buyers or investors.
To fully understand this effect, we have calculated the difference in monthly installments, necessary income, cost of credit and borrowing capacity in the tables below, for a 20-year borrowing period by taking the level of rates as they were in January 2022 (1%), the current level (1.5%) and the level at which They could reach it by the end of the year (2%).
Monthly payments, necessary income and cost of credit
It requires borrowing 200,000 euros over 20 years at a rate of 1%, for example, repaying 953 euros per month (0.20% insurance included). Today we are already going to €998 per month at 1.5% rates and could reach €1045 tomorrow at 2% rates. At the same time, the cost of this loan (excluding insurance) will rise successively from 20,749 euros to 31,622 euros and then to 42,824 euros.
This also amounts to saying that with an equal purchase budget, today it is necessary to justify around €2850 of monthly income so as not to exceed the 35% debt ratio imposed as a rule by banks while €2720 per month was sufficient before that and tomorrow it may be necessary not so far About 3000 euros per month.
|money and you|
|rate 1%||rate of 1.5%||rate of 2%||Potential difference over 1 year|
|Monthly payment (0.20% insurance included)||€953||€998||1,045 EUR||+92 EUR|
|Required monthly income||2,720 EUR||2.850 EUR||€2.985||+265 EUR|
|accrued interest||20,749 euros||31,622 EUR||42,824 EUR||+22.075 EUR|
Borrowing capacity more than 20 years
For a given salary, higher interest rates consequently reduce the ability to borrow, unless the loan period is extended or more personal contribution is mobilized. Staying over 20 years, we see that a monthly repayment of 1,000 euros (0.20% insurance included) allowed some time ago to borrow 210,000 euros, an amount that has already decreased to 200,500 euros today, today and perhaps 191,500 Euro tomorrow.
|money and you|
|rate 1%||rate of 1.5%||rate of 2%||Potential difference over one year|
|Borrowing capacity||210 thousand euros||200,500 euros||€191,500||– 18,500 EUR|
|Total cost of credit||€30.187||€39,721||48,664 €||+18.477 EUR|
Borrowing capacity more than 25 years
By pushing the logic over 25 years, which is the maximum period of borrowing for the old, we can better gauge the loss of borrowing power due to higher interest rates. For the same monthly repayment of 1,000 euros, one could borrow up to 245,500 euros a few months ago compared to 232,000 euros today and maybe 219,500 euros tomorrow. Thus we arrive at a budget differential of €26,000 which in very few areas corresponds to one room less. All this at a sharply increasing credit cost.
|money and you|
|rate of 1.3%||rate of 1.8%||rate of 2.3%||Potential difference over one year|
|Borrowing capacity||245,500 EUR||232000 EUR||219.500 EUR||26.000 Euro|
|Total cost of credit||54,458 €||€67,873||€80,300||+25,842 EUR|