Mortgages: Rising Rates Do Not Explain the Market Slowdown
3.30% in July, compared with 3.26% in June. The rise in mortgage rates is real but modest. However, it has not prevented mortgage lending from falling by 21.5% over the quarter. The Crédit Logement/CSA observatory describes a market that has entered a recessionary phase for reasons related less to the cost of borrowing than to household creditworthiness.
Four basis points
The average mortgage rate stood at 3.30% in July 2026, at 3.24% for new-construction homes and 3.28% for existing homes. After an initial rise at the beginning of the year, followed by a stabilization around 3.23% between February and April, the trend has resumed: three basis points in May, one in June, and four in July.
Banks are making adjustments, but not abruptly. Since December 2025, 15-year rates have risen by only two basis points, and 20- and 25-year rates have remained virtually unchanged. They are balancing the need to preserve their margins—amid rising bond yields and geopolitical tensions—with the need to maintain an already fragile flow of credit.
The real driver of the increase is the loan term
This is the point that the observatory highlights—and one that is rarely mentioned elsewhere. The rise in the average interest rate isn’t solely due to bank rate schedules. It stems from a distortion in the market itself.
The average loan term reached 253 months in July—or twenty-one years—and 265 months for home purchases, whether new or existing. A year earlier, it was six months shorter. In July, 51% of loans were granted for twenty-five years or more, compared to an average of 46.8% in 2025.
Long-term loans are more expensive. Their growing share automatically pushes the average rate upward—by eight basis points since April, according to the observatory. In other words, part of the observed increase is not due to a deterioration in banking conditions. It is the price paid to continue approving loan applications.
Creditworthiness Has Plateaued
The creditworthiness figures tell the rest of the story. Over the first seven months of 2026, borrowers’ revenues grew by 1.1%, while the cost of operations rose by 2.5%. The relative cost of an acquisition now amounts to 4.1 years of revenue.
The down payment, meanwhile, is now falling by only 0.3% after a 3.4% decline in 2025. This is not good news. The observatory sees this as a plateau: households have reached the limit of what they can draw from their savings. If the average amount remains stable, it is mainly because the market is attracting more second-time homebuyers who have sold a property, as well as a higher proportion of affluent households. The composition of demand is changing, and this trend masks the underlying deterioration.
An industry in recession
Volumes have plummeted. On a quarter-over-quarter basis, new loan origination fell 21.5% year-over-year, and the number of loans granted declined by 19.7%. On a rolling annual basis, new loan origination was up only 0.5% as of the end of July, compared with 31.1% as of the end of December 2025. The number of loans rose by 3.8%, down from 38% in 2025. If this trend continues, these indicators will turn negative as early as this fall.
The observatory is clear about the causes. The decline cannot be explained by a major downturn in the French economy or by rising interest rates, which have remained moderate. It is primarily due to hesitation on the part of households, which are facing tighter credit conditions and high down-payment requirements.
The Paradox of Second-Time Homebuyers
A closer look at the profiles sheds light on what the average rate hides. Today’s market operates at two speeds. On one hand, households selling a property to buy another arrive with a substantial down payment from the resale and secure favorable terms. On the other hand, first-time homebuyers must build up a down payment solely from their savings, at a time when the cost of a home purchase already represents 4.1 years’ worth of income.
The first group supports the data on mortgage applications and creditworthiness. The second group is gradually disappearing from the statistics—not because it has stopped buying, but because its applications no longer meet the debt-to-income ratio criteria. This is a silent transformation of the market structure, and its effects on prices are felt several quarters later.
What Does This Mean for a Borrower
Three practical implications. Negotiations now focus less on the advertised interest rate and more on the loan term and borrower’s insurance, where the differences between bank-provided policies and third-party policies remain significant over the life of the loan. Extending the term remains the available leverage, but it must be viewed for what it is: a total additional cost incurred to comply with the 35% debt-to-income ratio. Finally, an application with a decent down payment and a stable profile has never been more valuable to a bank seeking to meet its lending targets in a shrinking market. Now is the time to shop around for the best deal.
