Mortgage market under threat of economic uncertainty

"Since September 4, our rates have increased": this was the unpleasant news received at the beginning of the month by Jérôme and Charlène, two thirty-somethings about to buy an apartment in Paris, at a time when the cost of French debt was experiencing a fever pitch.

Their bank's previous offer, at a 3% rate over 20 years, had not yet expired, according to them. This did not prevent their institution from offering them a new rate, now presented as the "best" possible, at 3,15%.

The step taken in September is not insignificant for the couple, since it is likely to increase their total credit cost by almost 2.000 euros for every 100.000 euros borrowed.

The case of Jérôme and Charlène is not isolated.

Mortgage brokers have been echoing the news since the start of the interest rate hikes decided by the banking institutions with which they work, putting an end to the downward trend that began at the beginning of last year.

"Faced with economic uncertainty, mortgage rates are rising slightly," by up to 0,25 percentage points, wrote Artémis Courtage co-founder Ludovic Huzieux last week.

A note from the Vousfinancer network states that a bank justified the upward revision of its rate scale by "political instability, social tensions and tension on the financial markets."

French banks are dependent on their country's borrowing rate, since they borrow on the markets at a similar cost a portion of the money that they then lend to individuals and businesses.

However, the cost of French debt, a few days before the announced fall of François Bayrou and the downgrade of the rating by the Fitch agency, reached historically high levels at the beginning of September.

Screw tightening

The average home loan rate this summer was just below 3,10%, excluding insurance and additional costs, according to the latest data available from the Banque de France and the Crédit Logement Observatory.

Asked about the subject on Wednesday during a press conference, Crédit Logement CEO Jean-Marc Vilon sees this rate rising to 3,25%, or even 3,30%, by the end of the year.

"We are gradually moving back up to 3,5% over 25 years, with some differences depending on the region and the duration," says Côme Robet, president of CNCEF, a professional association of brokers.

It is still too early to know whether the rising cost of credit will deter borrowers and halt the recovery in the total amount borrowed each month by households, as noted by the Banque de France.

The latest figures published at the beginning of last week, ending at the end of July, do not - yet - illustrate this trend.

With 13,1 billion euros in new housing loans, excluding renegotiations, July was even the highest month recorded in two and a half years.

But professionals contacted by AFP see a possible catch-up effect during the summer and fear a halt to this recovery.

Banks are "tightening the screws a little," Caroline Pasquereau, spokesperson for mortgage broker Empruntis, told AFP, and are currently asking their intermediaries for "better files."

In addition to rising rates, there is a drop in confidence among the French, who are less likely to embark on long-term projects if they already have no short-term economic visibility.

These two factors combined "could reduce bank loan growth and compromise our forecasts for continued recovery in loan volumes in the coming quarters," Moody's analysts said this week in a note dedicated to French banks.

Illustrative image of the article via Depositphotos.com.