Stagnation of Mortgages rates in July

Between 2010 and the first quarter of 2011, mortgage rates have risen from 3.27% to 3.90%. However the current tendency is for stagnation. Explanation.

Although rates are continuing to rise, we can distinguish a real slowing down in this rise. According to L’Observatoire Credit Logement/CSA, the average French mortgage rates in July 2011 was approximately the same as the one observed in June.
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However, if we compare it to the result in 2010 for the same period, we can see how huge the gap is with the 3.27% registered the summer of that year. This gap can be explained by a sharp rise in the first few months of 2011 with a rise of about 10 base points per month. Thankfully the growth slowed down in the second trimester.
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In fact, all the elements which seemed to indicate a new rise of  French mortgage rates don’t add up. “The increase which started in November 2010 was due to the new regulation of Bâle III which imposes on  banks to have more cash flow than before. Therefore, the banks tried to improve their margins with the new mortgages,” if we are to believe Michel Mouillart, a French economist.
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However, some experts estimate that new factors can appear such as the “cost of money” for instance, as there are still worries concerning the amount of  sovereign debt. Apparently, this phenomenon hasn’t yet played an important role but some estimate its influence will grow in the upcoming years.

Moreover, the rise of interbank rates seems inevitable and could lead to a new rise of mortgages rates. Olivier Eluere, economist for Crédit Agricole, is convinced that “the rise of French mortgages rates is going to continue”.
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Rise in Mortgage duration
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Appreciation since 2010 has indeed considerably affected most households. For instance, a household with a mortgage will reimburse  5.5% more a month than one who started a mortgage in November 2010.
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Consequently, in order to deal with this phenomenon, the duration of a French mortgage has increased and the amount of personal contribution as well. Nowadays on average a mortgage is contracted over 212 months (17 years approximately) compared to 206 months in the first quarter of 2010.  Concerning personal contribution, it has risen by about 12% in a year! In addition, some experts say this phenomenon will keep growing thanks to the deregulation of the resale market, because the input will be bigger from the sale of the first French property onwards.
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As a result, there is a modification in the profile of buyers. Michel Mouillart, French economist at the university Nanterre in Paris, estimates that less wealthy households and first time buyers will be more affected, compared to others categories. Nevertheless, the economist strongly thinks the rise of mortgage rates will continue but won’t last too long. Currently, the rates have reached a level  equivalent to the level of 2006 when the market was in full expansion..

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This entry was posted on Friday, August 5th, 2011 at 4:47 pm and is filed under Bank account, Finance, French mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.


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