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ECB maintains current low rates: what does this mean for French mortgages?
The ECB has decided to maintain its current rates, while the Fed and the Bank of England have lowered theirs. What does this mean for current and future borrowers in France? Real estate experts shed light on the situation.
Although France’s record-low interest rates remain unchanged, the ECB has announced the implementation of exceptional measures meant to encourage banks to grant mortgages, with “an envelope of €120 billion for their asset purchase program and an extension of its LTRO or Long Term Refinancing Operations program, which are long-term loans granted to eurozone banks in order to ensure the immediate liquidity of the eurozone financial system,” details Vousfinancer in a press release. The ECB thus wants to ensure that banks “can continue to play their role in financing the real economy as the economic effects of the coronavirus become apparent,” it stresses.
In light of coronavirus, which has already weighed heavily on the global economy, we interviewed 3 experts to answer your questions on the impact of these measures as a current or potential borrower in France.
For Sandrine Allonier, spokesperson for Vousfinancer, the measures show that the situation is under control.
“Even if the Central Bank has left its policy rates unchanged, by announcing these exceptional measures it’s showing that it has the situation under control and that it will do everything it can to limit economic slowdown, which should help to keep government bond rates – particularly in France – low, and in their wake, mortgage rates,” analyzes Sandrine Allonier, spokeswoman for Vousfinancer.
For Philippe Taboret, Deputy Managing Director of the broker CAFPI, the rates were already very low.
“ECB rates are already at their lowest, so there’s no point in lowering them any further. Their decision to buy back debt is more beneficial as countries will have to go into debt to support businesses and minimise the economic impact of the Coronavirus. This is also good for mortgages, which should benefit from a drop in OATs,” he explains.
For Maël Bernier, Director of Communications for broker Meilleurtaux.com, this continuation is a good decision.
“Refinancing rates were already very low, so this decision has no impact on individual mortgage rates. Given the context and in particular the OATs, which are in negative territory, the banks are maintaining and will continue to maintain very low mortgage rates for individuals,” says Bernier. “The real problem for individual loans isn’t mortgage rates, which are extremely low and are likely to remain so, but instead the new rules that have been in effect since the beginning of the year per recommendation from the High Council for Financial Stability (HSCF),” she adds.
Borrowing under the new rules
Experts are unanimous: the new rules implemented by the HCSF and the Banque de France, which require banks to respect a 33% debt ratio and limit borrowing terms to no more than 25 years, put borrowers at a disadvantage.
“According to our calculations made with consulting firm Astérès, there are more than 200,000 households that would have been financeable in 2019 who are no longer eligible in 2020. Unfortunately, if nothing is done, 2020 will mean the end of home ownership and/or real estate savings dreams for the working class – which will also put pressure on the rental market with an increase in demand and a decrease in supply, as small investors will also be among the “victims” of these rules,” concludes Bernier.
“It is undeniably more difficult to borrow since the application of these recommendations. The number of credit refusals has more than doubled from 10 to more than 20% of applications submitted by CAFPI. First-time buyers and investors are mainly affected,” adds Taboret.
Volumes could decline
Although demand remains strong and interest rates are minimal, sales volumes in the wake of coronavirus are expected to take a tumble. “The evolution of the Coronavirus and the management of the pandemic will certainly have an impact on volumes but not on prices or interest rates,” stresses Stéphane Desquartiers, Founder of the Maison de l’investisseur. “A wait-and-see period should therefore certainly be planned for.”