Mortgages: The Start of the School Year Marks the End of the Era of Low Rates
After a smooth summer, bank rates have risen by 0.10 to 0.20 points since mid-August. Brokers see this less as a reversal and more as a shift in the economic landscape, driven by French government debt yielding over 4% and expectations that the ECB (European Central Bank) will raise rates on September 10.
On July 23, the yield on the 10-year French OAT (Treasury-equivalent bond) surpassed the 4% mark—a first since 2009, according to CAFPI. At the time, few borrowers took notice: banks kept their rate schedules unchanged all summer. The reality check came with the September rate schedules. “The first rate schedules we’ve received show increases ranging from 0.10 to 0.20 percent, depending on the bank,” notes the Vousfinancer brokerage network in its September 1 post-summer update, covering both regional banks and national lenders.
The August figures illustrate the extent of the increase. CAFPI negotiated average rates for its clients of 3.23% for 15-year terms, 3.43% for 20-year terms, and 3.53% for 25-year terms—7, 13, and 10 basis points higher than in July. The September Empruntis barometer shows an average of 3.50% over 20 years and 3.60% over 25 years—up for both terms—with rates unchanged for 10- and 15-year terms. Vousfinancer, for its part, puts the September averages at 3.40% for 15-year terms, 3.50% for 20-year terms, and 3.60% for 25-year terms. Borrowers with the best credit profiles are still securing rates around 3.10% for 20-year terms and 3.25% for 25-year terms.
A rise driven by the bond market
Why now? Brokers describe the same chain of events. Banks refinance themselves on terms linked to government debt; when the OAT rises, their margins shrink, and they pass on the costs. Rising inflation is also a factor: 2.4% in August in France according to INSEE (the National Institute of Statistics and Economic Studies), up from 2.1% in July and 1.8% in June, as noted by Vousfinancer, while CAFPI reports a year-over-year rate of 2.9% in the eurozone in July, above the ECB’s target. The third factor is the ECB itself: it raised its key interest rates by 25 basis points in June, left them unchanged in July, and could raise them by 0.25 points at its September 10 meeting. All of this is taking place against the backdrop of conflict in the Middle East, which is keeping pressure on energy prices.
CAFPI puts this into perspective: “This isn’t a sudden reversal, but a shift in trend,” and the scenario deemed most likely remains a gradual increase of a few tenths of a percentage point. Julie Bachet, CEO of Vousfinancer, sees this as a constraint rather than a strategy: “Traditionally, banks offer attractive rates in September to take advantage of this busy month for real estate transactions and attract borrowers. But this year, amid rising inflation and financial market rates, they have no choice but to raise their rates, despite their desire to do business.”
How a 10-basis-point change affects a monthly payment
Specifically, according to Vousfinancer’s calculations, a 20-year loan of 200,000 euros with an interest rate rising from 3.40% to 3.50% increases the monthly payment from 1,150 to 1,160 euros, excluding insurance. That’s 10 euros per month, or 2,400 euros over the life of the loan. The gap is widening, especially between financial institutions: not all banks have raised their rates, and depending on the borrower’s profile, the difference in rates can be as high as 0.8 percentage points. Some banks cater to young borrowers, while others focus primarily on income or the property’s energy performance certificate (DPE).
In this context, supplemental loans with preferential interest rates are once again attracting interest. Vousfinancer cites a loan at 1.99% reserved for first-time homebuyers, capped at 10% of the total financing amount and at 30,000 euros over 25 years, which can be combined with the PTZ (zero-interest loan). For a total financing need of 300,000 euros, combining a 30,000-euro subsidized loan at 1.99%, a 25,000-euro loan at 0%, and a principal loan of 245,000 euros at 3.50% over 25 years reduces the total cost of the loan from 155,000 to 131,100 euros, equivalent to a 3.10% interest rate.
Three key events will set the tone for the fall: the ECB meeting on September 10; the revision of the usury rate on October 1—which could automatically rise if the increase is confirmed; and the National Assembly’s review of the Housing Recovery and Decentralization Bill, which was passed by the Senate on July 8.
SeLoger and Meilleurs Agents, which estimate rates at around 3.65% for 20-year mortgages at the start of the school year, say the outlook depends on two unknowns: the duration of the conflict in the Middle East and market confidence in French debt. Rates could ease toward 3.5% by year-end if tensions remain contained; otherwise, they could rise above 4%. The strategy that has prevailed for the past two years—waiting to get a better deal—has just lost its main justification.
