According to the Housing Credit / CSA observation, in February 2019, borrowing interest rates for real estate continued to fall slightly . The overall average rate is 1.44%, compared to 1.45% in January, all durations combined. The observatory set up by the market institute in conjunction with a collective of the largest banks in France studies each month the evolution of rates. These data are gross, excluding insurance and fees.
Historically low rates
Over the past year, changes in mortgage rates have generally stabilized at a very low level. Real rates , inflation deducted, are even negative since the summer of 2018, the unheard of for 45 years.
It has been a year since the mortgage is experiencing a situation that appears to be historic . On the one hand, the average rates charged are lower than the level of inflation, 1.47% for old goods and 1.48% for new goods. On the other hand, the Banque de France announces total outstandings of over € 1 trillion, an amount never achieved before.
Another highlight, the duration of home loans has increased simultaneously with lower rates. Over the last 6 years, the average duration has increased by 2 years .
A rate cut that barely offsets rising prices
Since the end of 2015, 20-year rates have risen from 2.31% to 1.40%. It therefore seems much more favorable to take out a mortgage in 2019 than in 2015. However, to be complete, the analysis must also take into account the rise in real estate prices , which is, on average, 8.2% over the same period. One can therefore judiciously question the interest that there can be to borrow to buy in 2019.
If we examine the case of a house bought 200 000 € in December 2015, with a loan over 20 years at a rate of 2.31%, the monthly payments are, excluding insurance, to 1 041,39 €, or a total of 20 years of € 249,933.60.
The same property, acquired in March 2019, would cost € 216,400 given the average increase of 8.2%. With an interest rate of 1.4% over an identical period, monthly payments would be € 1,034, a total cost excluding insurance of € 248,160.
The “low rate” effect has just offset the rise in prices. In the same way, if the “purchasing power” real estate, because of very low rates, has increased from 200 000 € to 217 882 €, repayment monthly identical to 2015, again, the effect is very limited because of the price increase. It is therefore safe to say that rising prices do not affect households’ “purchasing power” . It is even better in areas where prices have risen less .