ECB rate hike in July 2022: What will be the impact on your mortgage?  - magnolia

ECB rate hike in July 2022: What will be the impact on your mortgage? – magnolia

On Thursday, July 21, the European Central Bank raised key interest rates by 0.5 points, the first in ten years. This action must be allowed To curb high inflation And it will have an impact on savings, but also on real estate loans. While access to real estate financing has been significantly tightened since March 2022, the situation for borrowers will only become more complex as usury stagnates.

Why is the European Central Bank raising key interest rates?

Before answering the question, let’s define what a file is interest rate. to carry out their own monetary policy And to regulate the economic activity of their country, central banks use the main rates that are short term interest rate. The main tool of this monetary policy is refinancing rate Which represents the rate at which commercial banks borrow, which then lend to businesses and individuals.

When the refinancing rate is low, demand is stimulated because consumers can Getting into debt at a lower cost. This has been the case since 2016, when mortgage rates began to slowly decline, reaching Role in October 2021 (1.03% not included home loan insurance and the cost of collateral according to figures from the credit scoring observatory). On the contrary, when the rate of refinancing rises, so does the demand for credit contracts.

The European Central Bank has set itself a target keep inflation below 2%In order to control price stability in the euro area. Since 2016, inflation has been low or almost non-existent, which made it possible consumption supportEspecially during the last two years of the health crisis. But at the end of 2021, inflation started to rise again with Economic recovery after covid It accelerates its progress with The war in Ukraine Resulting in a shortage of energy and food.

The result ,inflation The euro zone set a new record in June, in 8.6% in one yearAnd in 9 countries of the European Union it exceeds 10%. France performs better, having a rate 5.8%but far from the 2% target set by the European Central Bank.

raise him Refinancing rate from 0% to 0.50%The European Central Bank hopes to curb this accelerating inflation. speak Increase the cost of moneyConsumption will fall logically, which will lead to lower prices. At the same time, the interest rate on deposits, that is, bank cash not distributed as credit, increases from -0.50% to 0%.

The financial impact of families Obviously, this adjustment in European monetary policy varies depending on whether we are on the sidesaver orBorrower.

Sharp rise in mortgage rates

by savers, Increase in key rates It is rather good news, because investment products Like life insurance, regulated savings accounts, or Sicavs, will automatically increase. Good news to put it into perspective becausePay is still negative compared to inflation. Livret A will soon achieve 2%, but with 5.8% inflation, the purchasing power Decreased by almost 4 points: in real terms, the savings placed on the Livret savings account lost 3.8%!

Monetary policy adjustment has also Impact on Mortgages. Banks finance themselves through stock markets, but especially from the European Central Bank. If they borrow at a higher rate, they Transfer this increase to interest rates Granted to companies and individuals.

From now until the end of the year, total mortgage rates can up to 3%. Over the classic 20-year period, the average price is currently fluctuating between 1.85% and 2%. Those who have Borrowed less than 1% last year Varnish, because they have benefited from historically weak conditions that are unlikely to come back for very long.

Mortgage credit: the noose is narrowing with wear and tear

For candidates for a mortgage, the situation becomes problematic. face with Grant the imposed conditions By the Supreme Council for Financial Stability (the debt ratio limit is 35% of net income and the repayment period is 25 years), they face High borrowing rates last months, exclusion factor because of’scissors effect Because of a very low level of wear rate.

this is Clogging It is due to the method of calculating the wear Contrast with current rates. Even at the stage of rising interest rates, the legal maximum rates, set every quarter by the Bank of France, remain frozen for three monthswithout the possibility of modification to facilitate access to the loan and avoidance credit crunchlike what is happening now.

Now we see many well-to-do families, whose debt ratio respects the regulatory limit, forbidden to own Because the APR exceeds the wear during the respective period. As a reminder, the file April gathering All costs related to obtaining real estate financingAnd interest, as well as administrative fees, guarantee and insurance for the borrower.

Highly demanded by brokers and even banks, usury reform Unfortunately not on the government’s agenda.

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