“It is still time” to borrow before the rate increase “at 2% at the end of the year”, explained Friday, May 13 on franceinfo Sandrine Allonier, director of studies at Vousfinancer, while the ECB is increasing interest rates. This increase has consequences for mortgages.
franceinfo: Is it still time to embark on a real estate project?
Sandrine Allonier: Yes, there is still time because even though credit rates have increased by half a point since the start of the year, they remain attractive. Right now, you can borrow at 1.5% over 20 years. We were at 1% in January but we could reach 2% by the end of the year with the evolution of the European Central Bank. So yes, at 1.5%, these are still historically low rates.
So shouldn’t be late?
Yes, because with the increase in inflation, the evolution of European Central Bank policy, the increase in government borrowing rates, the banks have no choice but to increase their credit rates if they want to maintain decent margins and continue to lend. Since the beginning of the year, the French have lost 10,000 euros in borrowing capacity. If you can repay 1,000 euros per month monthly, you could borrow 217,000 euros at the start of the year, today it’s only 207,000 euros, so you sometimes have to revise your real estate project downwards.
What about real estate rates?
We had historically low rates for two or three years, but since the beginning of the year with the situation in Ukraine, the surge in government borrowing rates, inflation, the banks anticipate that the money they will lend will cost them more. That’s why they have no choice but to raise their rates. But there is a huge amount of liquidity, of savings, in the economy and the banks also want and must lend to capture new customers. This is why they are doing everything to limit the rise in rates, but the policy of the European Central Bank risks having an additional impact on credit rates.
Will the banks be less flexible in terms of deadlines?
They are already more attentive to the situation of the borrower. When you borrow over 20 years, the bank makes sure that you are able to repay over this period. They are more attentive to the distance between home and work because of the rising cost of gasoline. They are also more attentive for those who buy goods with works since the prices of materials have increased by 18% since the beginning of the year. So today they are going to look at the real estate project as a whole, but it’s also to protect borrowers.
Can playing over the duration of the loan reduce its cost?
Absolutely. We can go up to 25 years of maximum loan duration, but we have seen that in recent months the duration of the loan had already been extended. With a rate that has increased by half a point since the start of the year, borrowing 200,000 euros costs 50 euros more per month. At the end of the year, we could reach 70 to 80 euros per month. So to absorb this increase we can extend the duration of the loan.