Recent months have seen a decline in mortgage rates, with the average rate at 3.25% for a 20-year term as of January 2025. However, a downgrade of French banks’ ratings raises concerns about potential increases in refinancing costs and mortgage rates due to rising 10-year OAT rates. Experts urge borrowers to act quickly on favorable rates, though some believe the impact of OAT increases on mortgage rates may not be as severe as expected.
Current Trends in Mortgage Rates: What Borrowers Should Know
In recent months, banks have been actively adjusting mortgage rates to entice potential borrowers, leading to a noticeable decrease in rates. If you’ve been in the market for a mortgage recently, you may have observed a consistent trend of declining rates. As of January 2025, the average borrowing rate stands at 3.25% over a 20-year term, a significant drop from 4.3% just a year ago. This reduction in rates has been a welcome change for many individuals looking to secure a mortgage. However, the optimism surrounding potential rates dropping to 3% in the first quarter of 2025 has been tempered due to recent developments.
Implications of Economic Changes on Mortgage Rates
On December 17, a downgrade of French banks’ ratings by Moody’s cast a shadow on the mortgage landscape. This downgrade is linked to expectations of a worsening budget deficit and increasing public debt in France. As a result, investors will likely demand higher interest rates on new bonds issued by these banks. Consequently, this increase in refinancing costs for banks may be passed on to consumers seeking mortgages.
Moreover, the rise in 10-year OAT (Obligations Assimilables du Trésor français) rates, which are essentially state loan rates, is particularly concerning. These rates influence how financial institutions borrow in the market. Recently, the 10-year OAT rate surged from nearly 3% in December to 3.50% as of January 14. Experts warn that this upward trend could significantly impact medium-term credit rates.
Industry professionals like Olivier Lendrevie, a former president of the broker Cafpi, advise prospective borrowers to act quickly on rate proposals before banks adjust their rate structures upwards. The relationship between OAT rates and mortgage rates is crucial; when OAT rates increase, new mortgage rates tend to follow suit. For instance, a 1% rise in OAT rates typically results in a 1.4% increase in mortgage rates.
However, not all experts share the same grim outlook. Sandrine Allonier from the broker Vousfinancer suggests that while the rise in OATs introduces uncertainty, it’s essential not to jump to conclusions. The actual impact on mortgage rates may depend on the duration of the OAT increase. Historically, there have been instances where increases in OATs did not lead to higher credit rates for borrowers.
Another aspect to consider is the dual role within banks when it comes to setting rates. The financial service determines optimal rates for profitability, while the commercial service advocates for adjustments based on market objectives. Presently, the commercial side appears to be dominant, allowing banks to reduce their credit margins to attract new clients.