After several years of continuous increases, the Banque de France decided to reduce wear rate for real estate loans of 20 years or more. This decision, taken at the end of June 2024, aims to support the reduction in rates that banks have practiced in recent months. What does this news mean for borrowers and what about the rates for other loan terms? Decryption.
Context of the decrease in wear rate
For almost three years, interest rates had continued to rise, making access to mortgage credit more difficult for many households. However, an opposite trend began recently with the first decline in the attrition rate since 2021.
The announcement from the Banque de France
On June 28, the Banque de France announced a significant reduction in the interest rate applicable to property loans of 20 years or more, reducing it by 23 basis points. This rate is thus set from 1 July until 1 September 6.16%compared to 6.39% in the second quarter of the year.
A monthly update of wear rates
Historically calculated quarterly, wear rate updated every month in 2023, giving banks and brokers better responsiveness. According to the Banque de France, this method facilitates rapid adaptation to variations in interest orchestrated by the European Central Bank.
Consequences for borrowers
Easy access to property credit
This reduction in interest rates can make home loans more accessible to a greater number of borrowers. With lower ceiling rates, banks can actually offer more favorable credit terms.
- Expanded access to profiles previously considered too risky
- Possibility to negotiate lower prices with banks
- Possible reduction of costs associated with borrower’s insurance
Development of rates for different loan periods
Although interest rates for long-term loans (20 years and more) are falling, this is not necessarily the case for all types of loans:
- Loans of less than ten years: Slight increase noted
- Loan between ten and twenty years: Rate stabilization
- Loans over twenty years: Decrease of 0.23 points
Comparison with the practiced average rates
Between April and July, financial institutions offered long-term loans with an average rate of 4.62%. According to Crédit Logement/CSA Observatory, in May 2024 a 20-year loan was granted at an interest rate of 3.66%, much lower than the peak in December 2023, which was 4.26%.
Interest rate stability for shorter loans
Despite this general downward trend, however, it should be noted that interest on short-term loansless than ten years or between ten and twenty years, tend to remain stable or even slightly increase, according to recent observations.
The future of the real estate market
Bank Outlook
Banking institutions welcome this reduction in interest rates, which allows them to compete more effectively in the mortgage market. They now have more room to adjust their prices and attract more customers.
Impact on property prices
This dynamic can also spill over into the real estate market in general, potentially stabilizing or even lowering prices due to increased demand made possible by more attractive financing terms.
There historic decrease in wear rate on mortgages of 20 years or more marks an important turning point after three years of continuous increases. This decision by the Banque de France eases restrictions on borrowers and revitalizes the mortgage market. While certain types of loans are seeing a slight increase in their rates, the overall trend remains positive for long-term loans. It remains to be seen how these developments will affect property market trends in the coming months.
