At the end of March, borrowers under 36 years old benefit from an exceptional rate of 1.40% (excluding insurance) over a period of 30 years. After a significant drop in rates on short-term loans, CFR Finance offers first-time buyers the opportunity to acquire property over a long period of time. After interest rates have fallen from -0.10 to 0.25 pts, banks now offer a new opportunity for the poorest households to gain ownership by offering long-term mortgage loans up to 35 years old.
Where does this drop in rates come from?
With banks competing more and more fiercely, banks are taking advantage of extremely low rates to attract new customers through mortgage loans. They thus ensure that their clients are kept for a long time since it is unlikely that with such low rates, the borrower will be able to renegotiate its credit with the competition, as was the case between 2014 and 2016. Thanks to this relationship, banks will make profitable their investments in the medium term through the sale of ancillary products: means of payment, opening of savings account, home insurance, etc … Banks have no interest in increasing rates too quickly because real estate credit remains the best way to win customers over the competition.
Should we fear a rise in interest rates in 2019?
Given the stability of the ECB rate at 0% and a 10-year OAT at 0.28% as at 01/04/2019, no rate hike should occur before the end of the year . In a statement, the ECB has announced the possibility of a rise in current interest rates “summer 2019”. Even if this announcement is confirmed, the increase will be slight. To date, there is no surge in real estate rates expected in 2019. No indicator alerts us to a probable rise in property rates in 2019.
Some organizations are considering a rise in the event of a significant decline in the number of first-time buyers in the real estate market in 2019. However, this “unique hypothesis” can not be at the origin of a rise in the yield curve, especially if banks offer financing solutions over long periods to attract this clientele (subject to external events in France and Europe).
Why borrow over 30 years?
To maintain access to real estate credit for all types of customers including the less well off, banks are no longer willing to offer long-term credit, 30 years or even 35 years. The advantage of borrowing over a long period of time is that the borrower has either a lower monthly payment with equal loan or a loan with a higher amount at equivalent monthly payment. In return, by increasing the term of the loan, the borrower increases the total cost of interest.
Some households have no option but to borrow for 30 years to become homeowners. Overall, long-term loans are for young people under the age of 36. Thanks to a future salary increase, the borrower will be able to adjust his loan term. That is to say, he will have the opportunity to increase his monthly payment and thus reduce the duration of his credit. Admittedly, the rate will remain unchanged but by shortening the duration of its credit, it will automatically lower the cost of its interest. In the end, the customer does not borrow over 30 years, but over a shorter period. No need to redo a credit file to adjust its loan maturities, the bank will only re-examine the debt, checking your pay slips and the status of your accounts.
What is the cost of a 30 year credit?
SIMULATION OF A LOAN OF 200 000 €
|Over 30 years|
|Insurance (0.15% per annum)||$ 25|
|Total monthly payment||$ 705|
|Required income||€ 2,040|
|Total cost (with insurance)||$ 54045|
|TAEG (included guarantee fee + 0 € handling fee + account management fees)||1.80%|
For a 30-year loan at a rate of 1.40%, the insurance monthly payment is 705 €.
A household that receives an income of € 2040 per month may purchase a property worth € 200,000.
For the same amount borrowed, over a period of 25 years at a rate of 1.25%, the household will have to earn € 2330 per month. The extension of the borrowing period allows the middle class to increase their purchasing power.