“The Impact of Rising Mortgage Rates on Real Estate Market – Analysis and Insights”

2023-04-18 17:13:00

Month following month, the rise in mortgage rates has accelerated since the beginning of the year. According to the latest score from the Observatoire du Crédit Logement, the average rate (excluding insurance and fees) crossed the 3% threshold in March, and stood at 3.12% in mid-April. The average rate for a loan over 20 years is even 3.05% in March. In the first quarter, the average rate stood at 2.84% once morest 2.22% in the previous quarter, an increase of 62 basis points in three months. It’s a lot.

Real estate credit: the rise in rates is accelerating

“Since the beginning of the year, the rise in the average rate has been rapid, by 23 basis points per month, with in its wake the strong revaluations of the usury rate”, emphasizes the Observatory. In 2022, the average increase was 11 basis points per month. The monthly payment of the wear rate update, granted on an exceptional basis until next July (instead of a quarterly update), has therefore fully played its role by allowing the rate schedules to be unbridled a little more.

Increasingly difficult access to the market

However, underlines the Observatory, “the profitability of new loans is deteriorating further”. The European Central Bank’s refinancing rate went from 3% to 3.5% on March 22 even though the interest rate on bank savings is also rising. This rapid rise in the cost of credit is not without consequences for the structure of the market.

“Market access is becoming more and more difficult for both low-income borrowers and well-to-do households in large cities”, says the Observatory. And, the drop in activity on the market concerns all sectors of residential real estate. The fall in production is 41% in the first quarter, year-on-year (-20% in 2022).

The battle of the HCSF

A slowdown that worries real estate professionals, lenders… and the public authorities. According The echoesBercy has launched work to assess a possible relaxation of the rules for granting mortgages, imposed on banks by the High Council for Financial Stability (HCSF).

These rules provide in particular for a maximum debt ratio of 35% of disposable income, whereas banks usually reason in terms of “rest to live on”. If the mortgage market were to collapse, then the government might relax these rules. The decision is expected at the next HCSF meeting in June.

For its part, the Banque de France, in a note published on its website, declared itself opposed to any modification of these rules to avoid “push many households into situations of over-indebtedness”. It would even be “the worst time to do it”indicates in an unusual tone the Banque de France.