Real estate loan.  Will the rise in interest rates continue?

Real estate loan. Will the rise in interest rates continue?

On average, mortgage interest rates reached 1.88% in September, all durations combined. A sharp rise compared to 2021, where the CSA Credit Housing Observatory had calculated an average rate of 1.04%.

Over 15, 20 or 25 years, no financing period is spared by the rise in rates. A context that makes access to property more difficult, with the rise in interest rates reducing the borrowing capacity of households. How will the real estate market evolve in the months and years to come?

Read also: Real estate: “The problem is not the rise in credit rates but the lack of housing”

Sharp rise in interest rates in 2022

For borrowers, the year 2022 marks a turnaround. After years of low interest rates, banks have started to raise their financial conditions. In question ?

Mainly inflation, which prompted the European Central Bank (ECB) to raise its key rates. Banking organizations had no choice but to follow the trend. As a reminder, French inflation stood at 5.6% over one year in September 2022. A high figure, but still well below the level of price increases observed in the euro zone, 10% over the same period. .

The result of the increase in the key rates of the ECB was not long in being felt. While the average interest rate for a mortgage, regardless of its duration, was 1.04% in September 2021, it reached 1.88% in 2022, an increase of more than 80%. And over certain durations, the increase was even greater. Over 15 years, real estate rates have thus doubled (1.74% in September 2022). Same scenario over 20 years (1.88%).

While this was quite possible last year, borrowing at less than 1% is now impossible, because this increase does not only concern the most modest French people, but all borrowers, even those with the best records. . And for the years to come, the Observatory is betting on an average rate rising to 2.80% in June 2023, followed by a slight drop to stabilize at 2.45% at the end of next year.

What are the consequences of a rise in interest rates?

The increase in the rates relating to real estate loans has various consequences. On borrowers first: it significantly reduces their borrowing capacity. To be able to comply with the requirements of the High Council for Financial Stability (HCSF), banks are forced to drastically limit the number of files which may exceed 35% of the debt ratio and with a loan period of more than 25 years.

The increase in interest rates necessarily leads to an increase in the monthly repayment, and some files are therefore out of the nails. Therefore, two solutions present themselves: reduce the amount borrowed or extend the duration of financing. According to the CSA Housing Credit Observatory, the area of ​​goods that the French can acquire has fallen by 4 m². As for the second choice, relating to the extension of the financing period, the Observatory is clear: “This extension is no longer sufficient to offset the consequences of the rise in housing prices”.

Indeed, the rise in interest rates occurs in a context of particularly high real estate prices. As proof, the French have had to greatly extend the duration of their mortgages over the years, going from 13.6 years on average in 2011 to 20.3 years in 2022. But the coexistence between high interest rates and housing prices real estate at its highest should not last according to the rating agency Moody’s: “As home loans become more expensive, demand for housing will decline, likely leading to an easing of real estate prices after several years of growth ».