In the last few weeks, financial markets have experienced the pace of central bank announcements: BFD and Fed led. Lowering expectations for growth has forced central bankers to devise a new coup plan for already low key rates. The deposit rates are not spared either. This "convenient" policy is intended to stimulate growth and inflation. But the fall in interest rates, sometimes to negative interest rates, has a direct and significant effect on the real estate market. Find out why the situation is favorable for borrowers who want to implement a real estate project.
Historically low rates thanks to the more generous central banks
In conditions of a recession threat and in response to a much weaker than expected economy, central banks again cut their key rates (which condition the interbank rate, namely the rate at which banks lend to each other) and their deposit rates (in September). ie interest earned by cash banks in the central bank), including the ECB. The steady decline in key rates over several months has set a record for the global debt fund with a negative rate. In France, 10-year VAT is in negative territory as of June 2019 and 15-year government bonds as of September 2019. The 14 countries of the Economic and Monetary Union currently have negative interest rates on their debt obligations. States, for longer and longer deadlines. As for deposit rates, they are now in negative territory, at -0.50%.
As a result, banks can only lend money to each other at ridiculous rates, and negative deposit rates mean it costs the bank to put money in the central bank. Instead of being paid, she should pay for this service. Thus, rather than maintaining liquidity at negative rates, banks prefer to lend to individuals, even at very low rates.
The real estate market is full of the current situation. In fact, the 10-year-old OAT, which has been reporting a negative interest rate for several months, is a benchmark for mortgage rates for individuals. In addition, banks prefer to allocate their liquidity to real estate loans, especially in France, where the home loan default rate of 0.1% is the lowest in Europe. This means that in only 0.1% of cases, borrowers cannot repay their monthly payments. In this case, the bank, to pay off, sells the property to recover the amounts due. Real estate loans seem to be an interesting alternative for banks.
Mortgage rates below inflation: real affordable rates for the individual
The direct consequence of the central bank's adjusted policy is lower interest rates on home loans. Many fell below the 1% symbolic mark. The biggest decline relates to 20-year loans, now averaging 1.27%. As for the best files, their rate is close to 0.56% over 15 years, 0.68% over 20 years, 0.85% over 25 years.
Therefore, mortgage lending rates are often lower than inflation, which is expected to be 1.20% in 2019. It is therefore particularly interesting for an individual to use a mortgage. The individual borrows to get rich because the price of the rate is lower than inflation.
Luis Young (Cafe de la Burs)