All borrowers benefit from loans at lower inflation rates
In the second quarter of 2022, the average rate of loans in the competitive sector (excluding insurance and cost of securities) was 1.50% (1.41% to join new and old) according to the latest figures from Crédit Logement/CSA Observatory.
After an increase of 4 basis points over the first two months of 2022, progress has been much faster since: +42 basis points over the past four months. This hike in interest rates comes in response to heightened tensions across all financial markets since the outbreak of the war in Ukraine. But the average rate increase observed since December 2021 is still well below the inflation rate (+184 basis points) or the 10-year OAT (+201 basis points).
In June, only 4% of borrowers had a bearing rate of between 2% and 2.25%, for inflation measured at an annual level dropping to 3.91% year-on-year according to HICP (with a HICP difference of 6.51% on one. General): This was 3% in May.
Thus, all borrowers benefit from loans at rates much lower than inflation, which has not been seen since the end of the 1950s: the real interest rate on mortgage loans is largely negative, at a level not seen since 1949.
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Long durations to contain voltage rating
In the second quarter of 2022, the average term of loans granted was 239 months. The average term of loans granted remains at levels not seen in the past.
From 13.6 years in 2001 (163 months), he turned 20 in June (240 months).
Maintaining high terms made it possible to mitigate the consequences of the increase in loan rates: since December 2021, the annual premium rate has increased by only 4.7%.
In addition, these periods made it possible to maintain access to credit for some candidates for home ownership and investors in rental properties. The extension of the term helped keep the effort ratio below the 35% threshold imposed by banking supervisory authorities, mitigate the consequences of rising housing prices and increase employee inflow rates required to obtain credit.
Among those under 35, 78.5% took out a loan for more than 20 years in the second quarter, compared to 69.7% a year ago at the same time.
The average contribution rate and the cost of operations continue to rise
In the second quarter of 2022, the average down payment rate was 43.5% higher than its level in the fourth quarter of 2019. The market was then at its peak and the down payment rate was at its lowest levels. This corresponds to a 56.4% increase in the level of the average personal contribution!
This confirms that the context of the war in Ukraine has reinforced the client’s shift. The income of borrowers with sufficient personal contribution rises rapidly.
Despite this transformation, the recovery of the solvency index is not clear. This is the effect of the continuous rise in prices. New borrowers are implementing more ambitious real estate projects, The average volume of used credits increased by 8.0% in the first halfon an annualized basis, after +2.8% in 2021.
The deterioration of the market is getting stronger over the months
In the context of the strict application of the Fund’s recommendations and the deterioration of purchasing power, the number of loans granted has dwindled since the beginning of 2022.
Then the outbreak of war in Ukraine amplified inflationary pressures and their effect on loan rates, while household morale fell sharply.
This additional shock to credit demand turned the slowdown at the beginning of the year into a downturn in the market.
The purchasable surface increased by 1 square meter 1 year ago
Despite the back-to-back shocks since 2020 (HCSF recommendations, health crisis, resumption of inflation and war in Ukraine), households’ ability to buy old homes hasn’t really deteriorated, for the whole of France. Rather, it has benefited from the market shift caused by the increase in required down payment rates (the less fortunate borrowers leaving the market with a down payment): the increase in income of buyers who are still in the market attests to this. Thus, the purchasable surface has increased by 1 square meter for one year.
Towards credit rates of 2.25% at the end of the year
Inflation is rising (in July, in a trend of +4.33% on a staggered annual level and year-over-year variance at +6.47%), while the 10-year OAT is declining slightly (1.83% in mid-July vs. 2.06% in June).
In this context, the mortgage rate continued to rise: in mid-July, it settled at 1.64%, up 12 points in one month (+58 points since December 2021, against +178 points for the OAT at 10 years and +226 points for HICP) .
At the same time, the average duration is increasing: 244 months in mid-July, compared to 240 months in June (240 months in December 2021).
In an uncertain economic and international context, prices will logically rise.
Over the months, inflation accelerates, uncertainty about economic developments increases, and the level of the 10-year average rate of opioid agonist treatment projected for 2022 rises. For example,
In the December 2021 scenario, the Banque de France projected an inflation rate of 2.5% for 2022 and an OAT rate of 0.1%: with the outbreak of war in Ukraine, inflation expectations were
increased to 3.7% in March 2022 and the OAT rate to 0.7%; It will rise to 5.6% in June 2022 taking into account the strengthening of all macroeconomic imbalances, with the OAT at 1.3%; Even at 6.1% and OAT at 1.5% in the event of a shock to the power supply.
With inflation accelerating and uncertainty increasing, it is clear that higher mortgage rates will be much stronger than anticipated in previous forecasting exercises:
• At the beginning of the year, the mortgage rate was expected to be 1.30% for 2022.
• Looking at the economic scenario review for March, the rate forecast has been raised to 1.50%, with a rate of 1.85% at the end of 2022.
• Under the June scenario, the 2022 rate will now be 1.55%, with 1.90% at the end of 2022.
• But with the possibility of a shock to the energy supply increasing significantly, the loan rate is likely to stabilize at 2.25% at the end of 2022, with an average annual level of 1.60%
Towards a sharp decline in loan production
Demand for mortgages is supposed to fall sharply in 2022: after an exceptional year 2021, with offers accepted at 199.5 billion euros (+17.3%), due to tensions on interest rates, but also due to a loss of purchasing power and tighter access to credit . loan production will decline by 14.8% in 2022 (€170 billion) to return to levels in 2018 and 2020.
In the event of a shock to the power supply, further deterioration of the environment
Markets will be the reason for further weakness in loan production in 2022: accepted offers will then decrease by 17.3%, to produce 165 billion euros.
Michel Mollart, Professor of Economics – FRICS