According to the governor of the Bank of France François Villeroy de Galhau, interviewed by BFM Immo, the rates of real loans will still increase to reach between 2 and 3 % on 20 years, against 1,50 % on average currently.
The reasons: the European Central Bank (ECB) is going to raise its interest rates by 0.25 point in July, then by 0.50% in September, to limit inflation. This will slow down demand and encourage it less. This lowers prices.
The consequences of the ECB's policy on credit rates will not be felt immediately, although it will be raising rates this summer. Mechanically, because of the usury rate. This is a threshold established by the Bank of France beyond which it is forbidden for a bank to lend money. Its calculation takes into account the average effective rate charged by the banks during the previous quarter, depending on the duration of the loan.
The usury rates of June have been calculated on the rates actually granted (loan insurance and all fees included) from January to March 2022. When the rates were more attractive than today. Thus, the more buyers with good files borrow at low levels, the more usury rates fall, and the more difficult it is for some borrowers to be financed.
"There is therefore an inertia," explains Sandrine Allonier, spokeswoman for the home loan broker Vousfinancer. Many borrowers see their real estate credit refused today, because their file exceeds the usury rates, currently low. They go up only very slowly... "
The rates of credit could then reach the 2 or 3 % on 20 years at the end of the year. This would result in a significant increase in the total cost of the loan compared to a loan at the current rate of 1.50%.
For example, for a loan of €200,000 at 1.50% over 20 years, the total cost of the loan is €31,622. At a rate of 2%, it increases to €42,824, i.e. €11,202 more and at a rate of 3% to €66,207, i.e. €34,585 more.
This rise in rates will reduce the borrowing capacity of households. For example, to borrow €200,000 at 1.5% over 20 years, you need to earn €2,925 per month, whereas with an interest rate of 3%, you will need to earn €3,361 to absorb the increased monthly payment. That's €436 more per month, or €5,232 more per year!
That's not nothing," says Sandrine Allonier. Either you will have to compensate for this drop in purchasing power by making a personal contribution, or you will have to scale down your project.
According to the governor of the Bank of France, we would thus return to "more normal rates."
In 2017, they were at 2% on 20 years. However, "it was a record year in terms of loan production, with a very high volume of loan renegotiations," says Sandrine Allonier. Loan rates at 2% are not likely to block the market, nor to dissuade borrowers. We have become too accustomed to falling loan rates.
Except that five years ago, credit was not framed as it is today, one could borrow without a contribution, on long terms, with a higher debt. "What is problematic is the accumulation of these brakes, she analyzes, in a period of inflation, with the feeling that real estate prices are very high. The market seems to be more stuck today."
When rates are high, prices go down... In general, the adage is true. We are in a phase of rising rates which could eventually lead to a drop in property prices, but this is not automatic," notes Sandrine Allonier. Sellers will take into account the fact that, because of the rise in interest rates, the borrowing capacity of potential buyers will decrease. This could encourage them to lower their prices. But there is still a shortage of housing supply in some cities, with sustained demand."
And as the rise in rates will be very gradual and there will still be transactions, a collapse in prices should not take place, especially in tense areas, believes Sandrine Allonier. "The important thing is to choose your home well and above all to obtain your real estate loan," she emphasizes.
Source text : ledauphine.com
Article written by- 06/2022
Photo credit: forbes.fr