Real estate credit: low rates beat new record
The Credit Housing Observatory, a reference agency in France, announces an average rate of 1.29% in May 2019. A record!
An average rate of 1.29%
1.29% This is the average rate reached by mortgage loans during the month of May (excluding insurance). Why does this news make the rounds of the press reviews? Why is every media communicating this information? Simply because it is a historical record.
Since 2016 now, the low rates of real estate loans are the news. Low rates stimulate the credit market and homeownership. While they rose slightly during 2017 and 2018, in 2019 the decline was again felt to achieve an exceptional floor. Is this record a real surprise? Yes, in part. If this new floor was not expected, it was still hoped. Indeed, in view of the orientations taken by the Sentro Bank, maintenance of rates at low levels was announced by specialists.
By not raising its key rates, the central bank allows the various retail banks to refinance on particularly attractive terms. This is reflected in loans borrowed by individuals from the latter.
Real estate purchasing power at best
However, if the weather is good, some observers including economists, sound the alarm: low rates can they create speculative bubbles? Far from these macroeconomic concerns, individuals benefit from rates that defy all competition. This means that compared to their parents, current borrowers sign loans at rates up to ten times lower. If this comparison is meaningful, on the other hand, it should not ignore the evolution of inflation.
In terms of real estate purchasing power, it is a real improvement that is noted. In the space of 10 years, it has increased by 36%. Translation: A 2019 borrower can, with the same monthly payment as a borrower of 2008, buy a larger real estate area of 36%, so that represents additional square meters without paying more. The purchase of real estate is encouraged to build a heritage.
Renegotiate or redeem your home loan?
Low rates are not unique to new borrowers and first-time homebuyers. For a household that already has a credit in repayment, it may be appropriate to look into the real estate loan buyback transaction. By renegotiating their rate with a bank, it is possible to make great savings of up to several thousand euros. For this, it is necessary that the difference between the old and the new rate obtained is greater than 1%.
If the credit is relatively young, that is to say in its early years, a reduction of 0.7% can be beneficial. In this situation, it is therefore more than recommended to simulate the purchase of real estate loan to know the new monthly installment.