Real estate: should you buy despite the rise in interest rates?

Le taux d’usure en pratique et ses conséquences pour les emprunteurs

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The French especially appreciate real estate investment. Owning a home remains essential for a large majority of the population. Should the macroeconomic situation encourage the French to postpone their real estate projects or, on the contrary, should they materialize quickly? All our explanations to adequately prepare you for the purchase of your property in this convulsive context of inflation and rate hikes.

92% of French people consider becoming a homeowner “essential or important” according to a survey carried out by opinionWay for the Artémis group in February 2020. And second homes are also popular with private investors (3.2 million second homes in France according to an INSEE study published on August 25, 2021), as well as rental property investment (more than one in two French people has already made a rental investment or is thinking of doing so according to a survey conducted by the Poll&Roll Institute in 2021 on behalf of Masteos, a start-up specializing in turnkey rental investments).

rates go up

The high inflation that we have been experiencing for several months has led the central banks to review their policy. To curb rising prices, they have two big levers at their disposal: stopping asset buybacks (end of quantitative easing) and raising key rates. Both of these monetary tightening tools deployed by central banks are effective, but we will focus more on raising key rates, which has a direct impact on people considering a mortgage.

In fact, the reference rates established by central banks correspond to the rate at which they lend money to banking establishments. When this rate increases, the banks transfer this increase to the rates of the loans that they themselves grant to companies and individuals, and in particular to the rate of mortgages, which rise month by month. Thus, in June 2022, Cafpi customers were able to borrow an average of 1.29% over 15 years compared to 1.22% in May, 1.42% over 20 years compared to 1.35% in May and 1.57% at 25 years compared to 1.51% in May.

Also read: State of the real estate market in Paris and the Paris region in the summer of 2022

slower than inflation

Despite this significant increase in mortgage rates, it is clear that it is still very advantageous for a household to take out a mortgage, since the French can now finance their real estate projects at rates well below those of inflation. Recall that in June 2022, in one year, the consumer price index increased by 5.8% according to INSEE. And the National Statistics Institute expects inflation to be around 7% in 2022.

Real estate: a tangible investment

Therefore, it is still particularly advantageous to borrow to finance your real estate project. Remember that property values ​​can certainly fluctuate, but this reassuring, tangible investment has often been a bulwark against inflation. Real estate not only represents an investment that does not depreciate in times of inflation, but even tends to appreciate.

Buying stone: an ideal investment in these troubled times?

And yet! The market is showing signs of slowing down. It must be said that, not to mention the bubble, real estate has recently captured a large part of the investments of individuals and institutions.

So raising key rates, which leads to very rapid increases in interest rates from month to month, causes a damaging jackhammer effect for low-income earners. Can no longer necessarily borrow without exceeding the 35% maximum borrowing ratio due to rising interest rates and/or can no longer necessarily be granted a loan due to low attrition rising less rapidly than interest rates . Indeed, interest rates have begun a continuous rise when the usury rate, taking into account its calculation method (average rates effectively granted during the previous quarter, plus a margin of one third) only rises every quarter.

In addition, another measure should not encourage investors to opt for rental investment and could even have consequences for the real estate market as a whole: the ceiling on the increase in rents that the Government wants, at a maximum of 3.5%, for one year, to limit the impact of inflation on tenants, but which will be unfavorable to landlords.

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