Mortgage interest rates in France rising slowly, but optimism is still strong

France had a record production of real estate loans in 2016. Historically low interest rates have began to rise slightly since December, but borrowing conditions have remained very attractive. For brokers, 2017 looks promising.

The French real estate market was exceptionally dynamic in 2016 and the unprecedented number of housing transactions was largely due to the decrease in interest rates on loans. Reaching their lowest level in November (1.53% on average), rates declined by a whole percentage point over twelve months, a record that increased the purchasing power of many French households.

Slight increases as we make our way through 2017

In December, a slight increase in mortgage rates was observed for the first time since the summer of 2015. Particularly due to the increase in government borrowing rates, which went from 0.10% to 0.80% in a month, most banks raised their rates. Some raised them between 0.10% to 0.40%, but allowed themselves to reduce rates between 0.30% and 0.40% for particularly good profiles. The average the fixed rate was at about 1.5% for a 20-year loan.

The trend remained the same in January, with a small increase in rates recorded at the most banks. The average fixed rate for a 20-year loan was between 1.30% to 1.80% depending on the broker:

A sharpened commercial appetite

After two consecutive months of recovery, we are still far from the 2% interest rate mark, a level that was reached only a year ago. It’s not enough to stop the optimism of credit brokers in 2017 though, who are betting on the commercial appetite of their competitors. The rise may continue in 2017, consistent with the recent 10-year rise in the 10-year rate, which has since stabilized, and the prospect of higher inflation in 2017. However, institutions are likely to continue pursuing an offensive rate policy in order to remain competitive

“Banks clearly have very ambitious credit production targets for 2017 because they are the same as those from 2016, which is set to be a record year with more than €230 billion in expected credit production,” said Jérôme Robin, president of Vousfinancer.

“Moreover, as long as the Central European Bank does not raise its refinancing rates, which are at about zero, or its deposit rates, which are still negative, banks are have no reason not to lend money. They have every reason to maintain attractive credit rates in 2017… and could even make the choice to lower them again this spring,” he added.

Loan applications are making the difference

Clients’ profiles have been making a big difference for lenders, and interest rate disparities are likely to be greater than they were before. Banks may be focus their business and good rates on good customers. However, competition remains strong between institutions and real estate remains one of the only means for banks to retain customers over multiple years.

The expected rise in interest rates is likely to penalize more modest households who have been able to consider buying a home in recent months thanks to the lower cost of credit. According to calculations by the broker Empruntis, a 0.5% increase in interest rates could exclude nearly 8% of potential buyers.