The Housing Credit / CSA Observatory has shown that the fall in interest rates over a year is equivalent to a 7% drop in prices. In September, mortgage rates declined further leaving the French debt to 1.41% on average over 20 years. Loan subscriptions finally reached record levels during the summer of 2016, half of which corresponded to renegotiations. This low interest rate environment should continue until at least the beginning of 2017.
Another rate cut for the months of September and October 2016
Real estate rates are falling steadily. After five years of continuous decline, they lost another 0.10% in September 2016. This trend should continue in October, with banks taking advantage of this context to recover many customers. If in November 2011, the real estate rate was close to 4% over 20 years, at the end of September it fell to 1.41% over 20 years, as noted by the Housing Credit / CSA Observatory. This unexpected phenomenon even causes individuals to wait for a further decline in interest rates to embark on their project. In October 2016, some banks continue to lower their rates in order to meet their objectives and compete in the sector. The French have never been more likely to get into debt since in August, the production of new loans to housing continued to increase to reach 23 billion euros. This context is good news for individuals who can compete with banks to get the best rate possible.
Real estate credit: a favorable context for first-time buyers
This low interest rate environment particularly favors young people who will benefit from rates lower than 1% over 20 years for certain clients. These conditions are incomparable with those required on standard files. Thus, to achieve their objectives, some banks have significantly reduced their rates over 20 or 25 years and even agree to lend without contribution to the under 35 years. Banks rely mainly on the long-term relationship with their future customers. In addition, they have a low risk of renegotiating their credit in the coming years, given the level of current rates. First-time buyers are therefore omnipresent in the Banking Barometer. In addition, the expansion of the Zero Rate Loan partially resolves them. If conditions are more favorable, it remains essential for young borrowers to justify a stable employment situation with a permanent contract.
Banks under pressure
In addition to the pressure they experience from regulators, banks also face the pressure of the government. Indeed, these call for a greater opening to competition of the borrower insurance, a market in which the banks represent 80%. Some professionals fear the risk that banks will decide to raise their rates in case of loss of market share. On the other hand, the macroeconomic environment is also putting pressure on banks. Indeed, we must know that historically low rates reflect a slow economy. Thus, France would be in a slow recovery stage and rates should also, gradually recover.
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Towards a rise in interest rates in 2017?
After a year of uninterrupted decline, some brokers are banking on rising rates, while others believe it is a false alarm. Last year already, many professionals foresaw a reversal of the trend, wrongly. Brokers are currently scrutinizing bank rates. If rates seem to remain favorable to borrowers, it may be that the floor has been reached. For the first time in 12 months, no new low rate record was posted by banks. Indeed, even the most aggressive credit institutions do not move any more while the others lower their rates slightly but only for the best profiles of borrowers.
Some brokers predict a slight rise in real estate rates as early as January 2017. However, if their predictions were false a year ago, why should we believe them this time? The context has clearly changed and this change makes this hypothesis more credible. Indeed, banks question today the fixed rate policy of real estate credit practiced in France . That of the floor rates therefore shows a significant risk on institutions, especially in case of rising rates.
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