Is this the end of a blessed period during which individuals were able to go into debt almost for free to access property? Or will rising interest rates deflate property prices that had peaked since the 2008 financial crisis? What is certain is that with the tightening of the monetary policy of the ECB, which is about to announce this Thursday, October 27, a new increase in interest rates expected by 0.75 percentage points, the situation real estate is changing, faster than we would have imagined.
In less than six months, borrowing rates, all durations combined, fell from 1.3 to 1.9% on average in September, according to the latest figures from theCSA Housing Credit Observatory. A level that had not been reached since the beginning of 2016. If we are to believe the brokers, who see the banks’ proposals several weeks before they are signed, the offers, excluding insurance, would rather gravitate around 2 .5%, and could reach 3% by next fall.
More complicated borrowing conditions
Enough to seize up the beautiful real estate machine that had been triggered in recent years thanks to the fall in rates. To give an order of magnitude: at the end of 2021, a buyer wishing to buy a property of €250,000 over twenty-five years had to pay a monthly payment of €950, compared to €1,120 for a loan which would be offered today , i.e. a loss of real estate purchasing power of around €50,000. A loss, however, partially offset by the increase in income.
Access to the market has therefore become more complicated, resulting in the exclusion of many players. According to the Credit Observatory, the number of mortgages fell by 32% over one year in August and September. Accused of being blind to the situation, the Banque de France for its part evokes a more relative drop, of the order of 20% between May and August. “This credit production is approaching the five-year average (20.3 billion), reflecting the ongoing normalization process,” the institution recently explained in a press release.
Attrition Rate Reform
To give a breath of fresh air to the market, brokers have been pleading for months for a reform of the usury rate, legally defined as the maximum rate at which banks can lend. Calculated once a quarter by the Banque de France, based on the average of the last three months, the latter was revalued on 1er last October, at 3.03%. But, in the opinion of several brokers, the scissors effect is once again at work. “With banks refinancing on the markets at 3%, some of them now refuse to deal with brokers to deal only with their customers”, testifies Maël Bernier, spokesperson for Meilleurstaux.
At the start of the week, the Minister Delegate in charge of Cities and Housing, Olivier Klein, indicated on BFMTV that he would soon meet François Villeroy de Galhau, the Governor of the Banque de France, on this subject. Among the avenues considered, that of excluding from the wear rate the borrower insurance premiums, or the transition from a quarterly readjustment to a monthly one. But until now the institution has always firmly opposed such a scenario, considering that an increase in the rate of wear and tear would end up disadvantageous to borrowers. Thanks to this legal safeguard, French property rates have also increased almost half as fast as in the rest of the euro zone.
Towards a fall in real estate prices?
In essence, the whole question is also how the market will react to this rise in rates. Will real estate prices collapse, as some expect? Maël Bernier absolutely does not believe it. “For there to be a drop in prices, owners would have to start selling their properties massively. But in France, where owners are indebted at fixed rates, most of them having benefited from very advantageous rates over the past decade, there is no reason for this scenario to occur.she believes.
For the moment, the figures rather prove him right. Despite the rise in rates, prices have not really started to fall, except in Paris, where there has been a slight decline since the health crisis. In recent weeks, real estate professionals have been torn about whether the average price in the capital has already fallen below €10,000 per square meter.
Across France, prices would have increased by 0.3% in September, according to the Best Agents barometer, with transactions remaining at high levels. Nevertheless, even if there was no market collapse, the blessed era when owners could benefit from marvelous capital gains on their property seems well and truly over.