Real estate rates are rising faster than expected. Increases that go up to almost + 50% from one month to another at a regional bank for certain profiles, a record according to Vousfinancer.
With a real estate market that has been running at full speed for many years to reach a record high in 2021, the current context could change the situation. Although the effects of the war in Ukraine are difficult to predict for the market, certain signals give the alert, in particular for the construction sector which is beginning to measure the impact of the effects of the war in Ukraine, with an increase in costs energy and materials. These increases could have an impact on household budgets and other increases are on the way.
As for financing conditions, although the ECB has decided to maintain its key rates, interest rates for individuals are up in March. A predictable increase announced at the end of 2021 after record lows last year. However, this increase in scales is much more marked than expected.
“In March, in the wake of government borrowing rates, several banks raised their lending rates, by 0.10 point but up to 0.5 point for one of them… An increase of unprecedented rate in a single month”, underlines the broker in a monthly press release.
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“While it was still possible to borrow at less than 1% over 20 years – or even over 25 years – in January 2022, now it is almost mission impossible, with very rare exceptions… A bank has thus increased the rate offered to the same profile for a loan over 20 years from 1.03% to 1.53%! However, at 1.35% on average over 20 years, we remain on interest rate levels that are still attractive despite the recent increases”, analysis Sandrine Allonier director of studies at Vousfinancer. The regional bank in question therefore increased the rate for this profile by almost 50% in one month.
What are the posted rates in March?
According to Vousfinancer, the average rates now show: 1.2% over 15 years, 1.35% over 20 years and 1.55% over 25 years.
An increase which could reduce the volumes of loans granted, even if the banks intend to continue their strategy of winning over new customers through mortgages.
“The banks all have high credit production targets which should lead them to continue to lend while ensuring that their margins are preserved. But rate discounts are still possible for the best profiles”, analyzes Julie Bachet, CEO of Vousfinancer .
Without the conflict in Ukraine having any real impact on these increases for the moment, such a rise in interest rates could cause concern for the good health of the market. Especially since the rate of wear could then become a brake for certain profiles since the latter is fixed quarterly and therefore does not take into account this monthly evolution. In addition, the restrictions that have weighed on banks since January 1, with the obligation for banks to limit financing that does not fit the nails in terms of debt ratio and duration also restrict the credit tap. . Customers who could be financed yesterday could therefore find themselves excluded from the market. According to Meilleurtaux, 3 out of 10 cases exceed 35% debt. For its part Cafpi believes that these rate increases should “normalize the market”. Also, “to remain competitive, banks will have to continue to offer attractive real estate rates to individuals after an absolute record of sales in 2021”.
Increased competition on borrower insurance
In addition, other changes have marked the mortgage landscape, and may explain this rise in interest rates (in addition to the rise in 10-year OATs which serve as a benchmark), these are the reform of the borrower insurance which allows mortgage holders to put their insurance back in competition at any time from June 1st. This should lower the banks’ margins for this type of product for which they are in a quasi-monopoly situation.
Thus, while the war in Ukraine has not yet had a direct impact on the real estate sector, vigilance is still required, particularly with regard to borrowing rates. “To date none of our banking partners have mentioned the conflict in Ukraine to justify the latest rate hikes. On the other hand, there is clearly an impact from the rise in government borrowing rates, which could continue to rise significantly in the event of economic consequences for France or involvement in the conflict which could increase the risk for investors and increase the rate of government bonds”, analyzes Sandrine Allonier.
On the price side, the increases could be more limited in 2022, even if a pause has already been observed since the start of the year, particularly in Paris where prices have even fallen by almost 2% in one year.