07.09.2022

Back to school 2022, soaring credit rates are turning the real estate market upside down

The continuous rise in mortgage rates in many European countries is having a strong impact on the market this fall. Add to that, inflationary pressures, forcing banks to pay more for refinancing. But also the conditions for obtaining loans which have tightened and which impact most borrowers. Overview at the beginning of September on the economic environment which will necessarily impact your activity.

 

1. Confirmed rise in interest rates

The average rates charged by banking establishments are progressing regularly and quickly. We have to go back to the end of the last century to witness such a significant and rapid rise in rates. This means the end of a period during which borrowing conditions were exceptionally favourable for buyers.


Endless rise? Unfortunately it doesn’t seem to be over. The prediction for 20-year loans in France, for example, should reach somewhere around 3.5% in 2023! For the youngest among you, known rates in… 2014.

Possibles Consequences :
  • a complete reversal of the market and the end of a period: when real estate prices soared with very low interest rates and extremely long loan terms allowing buyers to compensate for the lack of increased purchasing power,

  • Some households will be tempted not to buy.

Good to know: a 0.5 point increase in rates reduces borrowing capacity by 5% in equal monthly payments[2].

 

2. Contraction of the mortgage market

At the same time, the general decline in various European mortgage markets has accelerated since the beginning of the year. We can even speak of degradation: 

  •  the number of loans granted is decreasing. In France, for example, it was down (on a quarterly basis) 9% at the end of June (year-on-year),

  • the amount of loans for the purchase of a home is also falling. Net demand for housing loans fell in 2022 in European countries such as France, Germany and Italy (except for Spain, where they have increased). Net demand for consumer credit increased in France, Germany and Italy, and fell in Spain."[36]

The reasons? Strict application of the recommendations of the HCSF (the French High Council for Financial Stability - a maximum debt ratio of 35%), loans requested while purchasing power is deteriorating, credit conditions are not favourable. Add to this cocktail, the Ukrainian conflict reinforcing inflationary pressures, the morale of buyers at half mast.

 

3. Low wear rates

The usury rate was put in place to prevent consumers getting into more debt than they can handle. The wear rate is the APR that a banker applies when applying for a loan. For a mortgage, it includes: the interest rate obtained by the buyer + the costs (file, brokers, etc.) + compulsory insurance and guarantees.

If the credit APR exceeds the rate of wear, the financing is refused. Today, the rapid rise in interest rates comes up against a low rate of wear and tear, updated only once every 3 months! As a result, the number of files rejected by banking establishments is increasing.

In France, for example, since July 1, usury rates are 2.60% for fixed rate loans of 10 to 20 years, and 2.57% for fixed rate loans of 20 years and more. These amounts could be revised upwards on October 1.

 

4. Property prices and sellers' obligations

Faced with this unfavorable economic situation, real estate prices have not yet experienced a turnaround. And this factor is certainly one of the most important in explaining buyers reservations. 

For their part, sellers must face new constraints, such as the energy audit of a property.

So what to do? Especially since the increase in the key rates of the European Central Bank indicates a continuation of the rise in credit rates in the coming months. And with a rather saturated real estate market, an exacerbated competition, it is not easy to stand out.

Two essential axes:

  • your presence with prospects to capture current mandates. Develop a relationship of trust by adding a dose of digital prospecting to your strategy. Provide answers to their problems and questions in exchange for their contact details.

  • accompany sellers on their obligations, possible work, possible financing. Direct them to the right contacts. Highlight your specific offers: virtual tours of the property, floor plans, partnerships with assessors, architects, etc.

 

[1] Bank of France
[2] Olivier Lendrevie, president of Cafpi
[3] The euro area bank lending survey – Second quarter of 2022 
[4] 10th edition of the IFOP-Cafpi survey on the French and home ownership, May 2022
[5] 10th edition of the IFOP-Cafpi survey on the French and home ownership, May 2022

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Thomas Lepelaars

I’m the happy co-founder and CEO of Nodalview, on a mission to help real estate agents leverage high quality visuals assets to build a winning online sales steady to grow their business

To sum up

What's going on?

The continuous rise in mortgage rates is having a strong impact on the market this fall. Add to that, inflationary pressures, forcing banks to pay more for refinancing. But also the conditions for obtaining loans which have tightened and which impact most borrowers.

What are the possible consequences?

A complete reversal of the market and the end of a period when real estate prices soared with very low interest rates and extremely long loan terms allowing buyers to compensate for the lack of increase of their purchasing power.

Some households will be tempted not to buy.

How to react?

Develop a relationship of trust by adding digital prospecting to your strategy. Provide answers to your prospects' problems and questions in exchange for their contact information.

Accompany sellers on their obligations, possible work, possible financing. Direct them to the right contacts. Highlight your specific offers: virtual tour of the property, floorplans, etc.