Alexandre Counis

Mortgage: Myth and Reality

At a time when interest rates are rising, do the French have the right to rush on mortgages, and banks are scrambling to distribute them? Ace! It concerns this impulse like many other mass phenomena: there, beyond the myth on the one hand, and reality on the other.

If individuals have flocked to branches in recent months to obtain such loans, it is because they fear that the price hikes associated with the tightening of monetary policy by the European Central Bank, to combat accelerating inflation, will make excessively costly their property purchases. Whether they hear it on the radio or read it in the papers, that’s how they feel anyway.

less buyers

But such a vision is a fantasy, and economic reality is not this. Admittedly, interest rates are rising by leaps and bounds, and only the cost of purchasing real estate can be affected. But rates remain relatively low and should remain so. After correcting for inflation, the real rates are still negative, which means that the customer gets richer when he borrows, despite the interest.

As for real estate prices, they are far from skyrocketing, and are even beginning to decline, especially in Paris. The reason for this development is quite simple: fewer buyers are willing to start.

safe investment

No doubt banks are happy to maintain opacity. Not only do they bet on home loans as a more effective weapon for gaining and retaining new customers in the long term, but they also know that these are risk-free loans for them in times of downturn. Activity, unlike loans granted to them by companies or consumer loans granted to individuals. Therefore, it is neither illegal nor dangerous for them to distribute it in abundance.

It remains to be seen whether such an explosion in mortgage credit is truly desirable for our society. To be sure, using the savings of the French people and mobilizing their debt capacity to invest in real estate would reassure them. What could be better as a safe haven in times of uncertainty, in a particularly chaotic environment? But this amounts to depriving the economy of money that would have benefited other asset classes, which create more value and generate jobs.

How do we face rising uncertainty?

Inflation, rising interest rates, Ukraine and now political uncertainty, the shocks multiply. For evolving in an increasingly complex environment, Les Echos’ editorial expertise is invaluable. Every day, our surveys, analyzes, columns and editorials accompany our subscribers, helping them understand the changes that are changing our world and preparing them to make better decisions.

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