Fixed.  The interest rate at 2 or 3% at the end of the year: What are the implications for the monthly payments for borrowers?

Fixed. The interest rate at 2 or 3% at the end of the year: What are the implications for the monthly payments for borrowers?

While credit rates have been increasing since the beginning of the year to reach 1.50% today over an average of 20 years, they should increase further by the end of 2022 to reach 2 to 3%. This will not be without consequences for the real estate purchasing power of families.

European Central Bank raises interest rates in July

According to Bank of France Governor Francois Villeroy de Gallo, in an interview with BFM Immo, mortgage rates will increase, reaching between 2 and 3% over 20 years, compared to an average of 1.50% currently.

Reasons: The European Central Bank (ECB) will raise interest rates by 0.25 points from July, then by 0.50% in September to curb inflation. This makes it possible to slow down demand, and reduce encouragement to it. Which lowers prices.

The result: 2 or 3% credit rates expected at the end of the year

The consequences of the ECB’s policy on lending rates will not happen immediately, although it will raise interest rates this summer. Mechanically due to the wear rate. This is the limit set by the Banque de France after which the bank is prohibited from lending money. Its calculation takes into account the average effective rate applied during the previous quarter by banks, depending on the term of the loan.

Thus the June usury rates were calculated based on the rates already granted (loan insurance and all costs included) from January to March 2022. When rates were more attractive than today. Thus, the more buyers with good track records borrow at low levels, the lower the erosion rates, and the more difficult it is for some borrowers to obtain financing.

Sandrine Allonier, spokeswoman for mortgage broker Vousfinancer explains: “There is thus a stalemate. Many borrowers today are seeing mortgage rejection, because their profile exceeds usury rates, which are currently low. They are rising very slowly…”

Credit rates can then be as high as 2 or 3% over 20 years at the end of the year. As a result of the significant increase in the total cost of credit compared to credit at the current rate of 1.50%.

For example, for a loan of €200,000 at a rate of 1.50% over 20 years, the total cost of the credit is €31,622. At a rate of 2%, it rises to €42,824, or €11,202 more and at a rate of 3% to €66,207, or €34,585 more.

Borrowing capacity that will decrease

This rise in rates will reduce the ability of households to borrow. For example, to borrow €200,000 at a rate of 1.5% over 20 years, one would have to earn €2925 per month, while with an interest rate of 3%, one would need to earn €3361 to absorb the increase in the monthly payment. This amounts to €436 per month or an additional €5,232 per year!

“It’s nothing,” says Sandrine Allnier. “Either it will be necessary to compensate for this decline in the purchasing power of real estate through a personal contribution, or to revise her project downward.”

2 to 3% over 20 years: a return to ‘more normal’?

According to the Governor of the Bank of France, we will therefore return to “more normal” rates. »

In 2017, it was 2% over 20 years. However, “it was a record year in terms of loan production, with a very high volume of loan renegotiations,” says Sandrine Allonier. Credit rates are at 2%, which is not what is likely to hold back the market, nor deter borrowers. We are more used to It is necessary to lower credit rates. »

Except that five years ago the credit was not so framed as it is today, one can borrow without contribution, over long periods, with higher indebtedness. “What is rather problematic is the accumulation of these brakes, he analyzed, in the period of inflation, with the feeling that real estate prices are too high. The market seems to be more clogged today.”

So is it better to borrow now at 1.50% or hope for lower prices?

When interest rates go up, prices go down… In general, the adage is true. “We are in the stage of higher interest rates which could eventually lead to lower property prices, but this is not automatic, says Sandrine Allonier. Sellers will internalize the fact that due to higher prices, the borrowing capacity of potential buyers is diminished. This can encourage them to give discounts in But there is still a shortage of housing in some cities, with continued demand.”

Since the price hike will be very gradual and there will always be transactions, there should not be a crash in prices, especially in tense areas, Sandrine Allonier believes. “The important thing is to choose your place of residence well, and especially to obtain a mortgage,” she asserts.

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