Increase in interest on mortgage loans – PEL regains interest – News

From 1eh From January 2023, the interest rate for the housing savings scheme (PEL) will be increased from 1% to 2%. Above all, the borrowing rights associated with the PEL should ultimately allow borrowing at below-market interest rates.

The famous housing savings scheme (PEL) has changed ownership, rate and level of taxation so many times since 2011 that we are a bit lost on its pros and cons. Especially since its status is hybrid: It is both a fixed and regulated savings product and at the same time a right to borrow at a reduced interest rate (depending on the number of ownership years).

Latest news: after being capped at 1% for a long time (since August 2016), the interest rate on savings on new PELs will be raised to 2% in January 2023. So is it worth opening a PEL?

What interest as an investment?

Since its last write-up several years ago, PEL has joined the clan of properly remunerated regulated savings accounts today. Booklet A actually reaches 2%, as well as the booklet on sustainable and solidary development (LDDS) and the popular savings booklet (LEP), whose prices are in line with booklet A.

After years of rates between 0.5 and 1%, going to 2% seems like Peru. But beware, two downsides: you have to factor in the taxation of around 30% for PEL, which brings the net rate down to around 1.25% (but it’s the same for the others, with exception booklet A, which is still exempt from tax and social contributions) and in addition 2%, it is better than all the last years, but much worse than in the 2000s, when PEL reached 4.5%. Finally, we can expect significant revaluations of the life right A for February 2023. It may reach 3 to 3.5%. Advantage for PEL anyway: the 2% rate is constant and therefore guaranteed for the duration of the plan, unlike e.g. booklet A, which can rise sharply, but also fall.

Conclusion: In an inflationary economic context, as is the case today, it is possible that the PEL rate will quickly be overtaken by other savings products with guaranteed capital, especially annuities A or by life insurance in euros. Although the new price puts it back in the race today against other regulated bonds, its main advantage lies mainly in its second attribute: to encourage a purchase of real estate.

What interest in a property purchase project?

Today, PEL could constitute a form of insurance for certain future candidates for real estate. The peculiarity and interest of the ELP is that the rates (savings interest and interest on the mortgage loan that can be claimed) are set on the day of the opening of the ELP. This therefore represents a kind of insurance: you are sure to be paid at least a certain amount. And safe to borrow there, too, at a rate known in advance. This is not the case, for example, with a housing savings account (CEL).

The debt interest to which PEL is entitled is admittedly not yet known. It will be in January 2023. But even if it will be higher than today, it should not exceed 3% much. But the banks are now charging mortgage interest rates that are getting closer and closer to this limit. If the inflationary context were to continue, being able to borrow around 3% could become a kind of insurance against the explosion in the price of mortgage loans.

Be aware that you will generally never be able to fully finance a property investment with a PEL. The amount that can be borrowed is linked to the duration and size of the invested amounts and limited to a maximum of €92,000. But it can be a useful contribution to win acceptance of your loan application (especially if the banks maintain their restrictive acceptance policy, as is the case at the moment).

For parents of teenagers, opening a PEL over the next year could also be a way to help them move in in the medium term. In fact, the borrowing rights associated with PEL can be transferred by parents to their children. They are then combined with the rights the children acquire if they themselves have a PEL. And even combine with grandparents’ (or uncles, brothers and sisters, etc.). The person who waives his rights to the loan can of course no longer benefit from it, but he gets his savings and the interest produced back.

Leave a Comment

%d bloggers like this: