Mortgages: Rates Are Rising and the Market Is Slipping Into a Recession
At 3.30% in July, the average mortgage rate continues to rise. But the real warning sign lies elsewhere: over the past quarter, new mortgage lending has fallen by 21.5%, and the number of loans granted has dropped by 19.7%. The summer lull in interest rates may not last into the fall.
In July 2026, the average mortgage rate stood at 3.30%, up from 3.26% the previous month, according to the Observatoire Crédit Logement/CSA. The rate was 3.24% for new-construction home purchases and 3.28% for existing-home purchases. After a period of increases early in the year, followed by stabilization around 3.23% between February and April, the trend is once again on the rise: +3 basis points in May, +1 basis point in June, and +4 basis points in July.
This increase remains modest and is by no means a shock. Since December 2025, rates on 15-year loans have risen by only 2 basis points, and rates on 20- and 25-year loans have remained virtually unchanged. Banks are cautiously adjusting their rate schedules to preserve their margins in a tighter bond market, without disrupting lending. The ECB’s decision in June to raise key interest rates automatically accelerated this trend.
Longer loan terms, declining creditworthiness
Moreover, the rise in the average interest rate is not solely due to the rate schedules. The very structure of lending has shifted: the average loan term reached 253 months in July, up six months year-over-year, and climbed to 265 months for both new and existing home purchases—historically high levels. In July, 51% of loans were granted for 25 years or more, compared to an average of 46.8% in 2025. However, long-term loans are also the most expensive: their growing share alone accounts for an 8-basis-point increase in the average rate since April.
This extension is the main tool banks are using to balance increasingly tight financing plans. This is because household solvency continues to erode: over the first seven months of 2026, borrowers’ incomes rose by 1.1%, while the cost of borrowing increased by 2.5%. The relative cost now amounts to 4.1 years of income. Down payments, meanwhile, are eroding slightly (-0.3% after -3.4% in 2025), a sign that they have plateaued: households have reached the limits of what they can draw from their savings. If the average down payment amount is holding steady, it is mainly because the market is attracting more second-time homebuyers and affluent households.
Economic activity is entering a recessionary phase
The most concerning figure is that for economic activity. On a quarter-over-quarter basis, credit issuance fell by 21.5% compared to last year, and the number of loans granted dropped by 19.7%. The rolling annual trend is also slowing sharply: credit issuance grew by only 0.5% at the end of July, compared with +31.1% at the end of December 2025, while the increase in the number of loans fell to 3.8%, compared with +38% in 2025. If this trend continues, these indicators will turn negative as early as the fall. The main obstacle is not the level of interest rates—which are still considered manageable—but households’ hesitation in the face of tighter credit access and high down-payment requirements.
As for mortgage brokers, the outlook is more favorable in the short term. In July, CAFPI negotiated average rates of 3.16% for 15-year loans (-1 basis point), 3.31% for 20-year loans, and 3.43% for 25-year loans (+1 basis point), and 2.98%, 3.10%, and 3.20%, respectively, for the best-qualified borrowers. The broker sees this as a summer “window of opportunity,” as the ECB paused on July 23 following its rate hike in June.
However, three signs call for caution as the new school year begins. Inflation in the eurozone is slowing—from 3.2% in May to 2.8% in June, according to Eurostat—but remains above target. The increase in the Livret A interest rate from 1.5% to 1.7% effective August 1 automatically raises banks’ funding costs. Finally, the 10-year OAT yield crossed the 4% threshold on July 23—a first since 2009—after rising by more than 0.70 percentage points year-over-year, against a backdrop of public debt at 117% of GDP. As long as this benchmark remains at this level, mortgage rates are unlikely to fall. Next event: the ECB meeting on September 10.
In practical terms, households’ purchasing power in the housing market is stabilizing rather than collapsing, but regional disparities are widening. For a monthly payment of 1,000 euros over 25 years at the average rates obtained by CAFPI, the amount of living space that can be purchased increased by 0.44 m² over the past year in Bordeaux—the only increase recorded—while it decreased by 0.42 m² in Montpellier and by 0.58 m² in Strasbourg. The sharpest declines were seen in Rennes (–3.90 m² over the year), Marseille (–3.05 m²), and Toulouse (–2.37 m²). In other words, rising interest rates have not yet eroded affordability, but they are amplifying the effects of a housing market where prices, at the local level, have not yet adjusted.
