French mortgage rates: will they stay low for longer or fall further?

Mortgage rates in France have been at historic lows in recent months. However, the outlook for the next move in interest rates has changed markedly over this period.

During the summer of 2013, commentators expected French mortgage rates to rise before the end of the year. In the early fall, this was pushed out to early spring 2014. The latest Eurozone inflation data has helped to delay rate rises into the current year.

Factors influencing world financial markets

Central bank interventions currently dominate world financial markets. The US Federal Reserve’s (Fed) $85 billion per month bond-buying program, the Bank of England’s preference for forward guidance and the European Central Bank’s (ECB) priority to save the Euro are influential in keeping interest rates and borrowing costs low.

The most significant factor is the timing of the Fed’s bond-buying program. Expectations that it would slow down towards the end of 2013 triggered an emerging markets sell-off over the summer. But the slowdown was delayed into 2014, owing to: the US budget stalemate and federal shutdown; the appointment of a more dove-ish head of the Fed; and the slow pace of economic recovery in the western world.

Eurozone inflation was running at 0.9% at the end of November 2013. This was slightly ahead of market expectations of 0.8% and eased the pressure on the ECB to cut interest rates to stimulate demand. However, the Eurozone inflation target is currently 2.0% and so the prospects are that the ECB will maintain interest rates at their current low level.

Likely effect on French mortgage rates and borrowing costs

As the US is the world’s leading economy, the Fed’s approach is lowering borrowing costs both in Europe and the US.

In the summer of 2013, most French lenders expected their mortgage rates to start rising by the end of the year. The Tec 10 index, which determines fixed rate mortgage rates in France, had been rising during fall 2013 and some of the French lenders had started to raise their fixed rates. However, after reaching a high in mid-October 2013, the Tec 10 index fell and stood at 2.33% in mid-December. So rates have remained steady and now may not rise until the end of this year.

The 3-month Euribor index rate, which determines the rates on variable rate mortgages in France, has remained very consistent over recent months. Variable rates may even fall slightly in the early part of this year.

The major non-resident French lenders have recently indicated that they hope to increase the number and volume of French mortgages they issue to non-resident borrowers during 2014.

So there are encouraging signs for prospective buyers of French property: improving confidence among buyers; the prospect of French mortgage rates staying lower for longer or even falling; and positive signals from some of the French mortgage lenders.

For the latest French mortgage rates, you can view International Private Finance’s best buy tables. To see how much your monthly French mortgage payments would be for a given loan, see our French mortgage calculator.