The end of the rate cut will not have lasted long. The stabilization period did not survive the influx of mortgage applications, which caused a slight upturn. The trend intensified in the weeks that followed, Good Finance then warned the public that around thirty banks had already raised their rates. Now it is the turn of the CSA / Astro Finance observatory to confirm that the upward trend is well established.
The end of 3 years of decline
Real estate rates were 4% in 2011-2012
The new millennium had started with an average mortgage loan rate in excess of 6% in the 1st quarter of 2001. The fall had then been staggering up to around 3.3% by the end of the 3rd quarter of 2005. It had taken 2 years to rise above 5% on September 1, 2009. At that time the banking crisis coming from the explosion of the American subprime market, had forced the central banks to lower their key rates.
The banks had therefore done the same with home loans, but very gradually to fall below 3.3% in October 2010. At that time a significant rise had occurred, to flirt with the bar of 4% until ‘at the end of the first quarter of 2012. The efforts of the Cream Bank then made it possible to lower the average property rate to below the 3% mark by May 2013.
A slight jolt caused rates to rise by a few months, the decline began towards the end of 2013, to land at 2.01% in June 2015.
Real estate rates are going down, now what?
In July, real estate loans guaranteed by the company Astro Finance, a giant in the sector, showed an average rate of 2.06%. This is therefore a non-negligible increase of 5 basis points, which, as the organization points out, still allows a reduction in the cost of operations by 10% compared to the end of 2013.
The purchasing power is important, and real estate investment is always much more profitable than the Livret A. Last month the purchase of a new main residence generally took place with an average rate of 2.10% ( excluding costs). Households wishing to buy an old main residence were able to do so at 2.09% (excluding fees). The average of 2.06% (excluding fees) therefore has a high proportion of renegotiation, as well as purchase for rental purposes.
The CSA / Astro Finance observatory’s report is clear regarding the situation for the coming months: the trend will be upward but slow. According to a scenario established by the analysts of the guarantee organization, even in the unlikely event of a hardening of the crisis “the rates at the end of 2016 would only go back to their worst at their level in summer 2014”, ie 2, 65%.
Do you have to wait to buy real estate?
Banks and first-time buyers still at the rendezvous
In the 2nd quarter of 2015, the number of home loans granted increased by + 50.5%, compared to the same period in 2014. Homebuyers under 35, who are therefore mainly tenants, have not not miss the check mark. In 1 year, their number increased by 20% on all the contracts signed, bringing with them a drop in the average personal contribution required.
The savings injected into a real estate project decreased on average by -10.5% from January to July, compared to the same period in 2014. This adjustment is clearly due to the presence of first-time buyers, who if they benefit from a woolen socks essential at least to cover notary fees, do not have the capital provided by seconding secondants in the event of a move.
Those who bought in a new program in July, needed to bring -10.7% less than their predecessors for the first 7 months of 2014. In the former their effort decreased by -9.9%, the ” explained by the difference in prices per m² between new and old.
Falling property prices play in favor of buyers
In the first quarter of 2015, the fall in borrowing rates succeeded in slightly increasing the price of real estate. The observatory formed by INSEE and the notaries noted an increase of + 0.3%, compared to the 1st quarter of 2014. However by comparing the last 12 months, we remained on a general decrease of -1.9%.
In Île-de-France alone, old housing had lost 2.9% in March – May 2015, compared to the same period in 2014. Overall Paris had suffered the most, with a fall of -3.1 % of its prices per m². At the same time, the fall in borrowing rates had contributed to the increase in purchasing power, and the downward trend could offset the tightening of bank conditions.
Lite Bank would not be surprised to end 2015 with a 3% drop in prices for old real estate in France. But there are many regional disparities, so notaries anticipate a rise in the amount of median transactions in old apartments in Paris, as well as in the old houses of its great crown.
July borrowing rates do not track 10-year OATs
French bond yields are down
When France borrows on the financial markets, it issues bonds. Institutional investors such as pension funds or insurance buy them, certain to be reimbursed. Among these bonds there are some that are redeemable 10 years after subscription, these are the famous 10-year OATs.
Historically speaking the rate of home loans follows the yield curve of these treasury bonds. The higher the remuneration, the higher the borrowing rates, and vice versa. This is not a rule to be followed, but rather a behavior observed with large banking brands for decades.
But this time the movement is interrupted. Because the yield on 10-year OATs suddenly climbed at the beginning of May, to return to its level of October 2014. However, during this time the banks continued to lower their rates, rather than bringing them down to October 2014 level.
When the European Central Bank steps in
This detachment from the method of setting borrowing conditions can be explained by the influx of cash from which banks now benefit. Since February the Cream Bank has engaged in a program to buy sovereign debt from members of the euro area. The banks, also institutional investors, therefore found themselves with cash to invest, and for the moment they have chosen housing loans.
After having practiced call rates in order to revive the real estate market, they are now taking their margins which allows them in particular to improve their equity.