At the end of 2017, real estate rates are very low with an average of 1.6% over 15 years. Future buyer of housing, should we fear a rise in mortgage interest rates in 2018?
Real estate credit: the impact of market rates
Euribor and OAT are two market rate which give an indication on the interest rates of real estate loans. Euribor is used for floating rate loans while OAT is for fixed rate mortgages. The evolution of these two rates downwards as well as upwards may possibly have information on the increase or decrease in interest rates on real estate loans, but it is mainly the variation in inflation (CPI). which determines the fluctuation of real estate rates.
- Euribor: average of the transaction rates made by all banks in the euro zone over a maximum of one year. We can find in the credit offers Euribor 3 months, Euribor 6 months or Euribor 12 months.
- OAT: Assimilable Treasury Bonds. Rate of return obtained following the purchase of an OAT at the secondary market price (according to the stock exchange rules) and kept until maturity. Generally, OAT is used at 10 years old.
- CPI: Consumer price index. It is a measure of the evolution of prices of goods and services offered to French consumers over a given period.
The impact of borrower insurance on the rate
Banks had almost a monopoly on credit insurance and fees could be exorbitant. Even if you were not obliged to subscribe to the one proposed, this was almost a condition for obtaining the loan.
- Insurance subscribed with a mortgage can be terminated in the first 12 months after signing the contract (Hamon Law, Article L113-12-2 of the Consumer Code) if he finds a cheaper contract with equivalent guarantees.
- From January 2018, a borrower can always cancel this insurance contract after these 12 months but only on anniversary date and by sending a registered letter two months before the deadline (amendment Bourquin, article L113-12 of the code of consumption).
Following this new possibility of termination, the banks could increase the rates of their new mortgages to anticipate this shortfall concerning the insurance borrower. On the other hand, the banks will not be able to change the conditions of a loan already subscribed in case of termination of the borrower insurance.
Another element may influence the interest rates of a mortgage, that of the bank domiciliation. As of January 2018, a bank that imposes a bank domiciliation for the granting of a loan, must do so by offering a counterparty to the borrower including a preferential rate for his mortgage. This mandatory domiciliation can not exceed 10 years.
As you can see, it is not clear whether credit interest rates will increase in 2018 and by how many parameters come into play. So if you want to invest in real estate, do not delay too much because the rise can be fast and brutal!