Real estate: the euphoria of cheap loans continues

Real estate: the euphoria of cheap loans continues

Rates again broke a previous record from May with an average cost of credit of 1.25% in June.

In two consecutive months, the average interest rate on mortgage loans has twice broken its own record. With 1.31% in autumn 2016, it was good to believe that the cost of credit would not go lower. But that was without taking into account the banks’ appetite to produce ever more outstanding loans by granting loans with the most advantageous conditions and more accessible criteria. Why are they betting on a product that gives them a reduced profit margin? Because the mortgage is above all an excellent tool to attract new customers, but also and above all to retain them over the long term.

New feat for home loan rates

home loan rates

Now, the record fell for the first time last May with offers of credit subject to an average rate of 1.29%. But financial organizations have gone even further since they proposed an average interest rate of 1.25% in June according to the Housing Credit Observatory / CSA, a level that explodes a little more the historic floor. Over 15 years, the average rate is even less than 1% with 0.99%, against 1.17% over 20 years and 1.39% over 25 years.

Never have the French dealt with such an attractive rent for money and the rates are, today, 4.5 times lower than in the first years of 2000. The comparison is eve n more glaring in referring to indicators 30 years ago where the population went into debt with rates 11 times higher.

Long-term loans for young borrowers

Long-term loans for young borrowers

Even the French with a more complex profile to finance manage to acquire property. How is it possible? Because banking establishments no longer hesitate to flexibilize their allocation criteria to lend more easily. First-time buyers, who are sometimes less quick to self-finance the personal contribution, manage to materialize their real estate project by using a 110% loan. The same goes for low-income households that manage to get into debt for longer periods of time, whereas loans over 25 and 30 years were much rarer in the past.

This drastic easing has the effect of increasing the average loan duration to 228 months in June, compared to 161 months in 2001. In June, 42.3% of the credits granted included a repayment period greater than or equal to 25 years. Back 20 years in the past, these offers were almost nil. And not surprisingly, 53.3% of those under 35 find themselves in debt over 25 years and over, while the proportion of those 45 and over is only 22.7%. And the more the age increases, the more the tendency is largely to the downward since the resources have the time to accumulate over the years, which increases the room for maneuver and the borrowing capacity.

Robert Reyes