“The mortgage rates increase by 25% in one month!! » Editorial by Charles SANNAT

My dear impertinents, dear impertinents,

“Real estate credit: heat stroke on interest rates with soaring inflation” headlines Challenges magazine, which is alarmed by the rise in mortgage rates.

“Faced with the surge in inflation, banks continue to raise interest rates on mortgages. With the tightening of loan conditions, it becomes more complicated to borrow.

The boom period of mortgage rates at less than 1% is over! Borrowers who want to finance a real estate project will have to pay more: the month of April saw a rise in interest rates faster than expected, after the rise observed at the start of the year. While inflation accelerated, to 5% over one year according to INSEE, due to Russia’s invasion of Ukraine, which caused the prices of energy and certain raw materials to soar, I‘OAT 10 years (the interest rate on French government bonds) has skyrocketed, exceeding 1% since March 28, an unprecedented situation since… 2017! This State loan is used as a reference to set the level of mortgage rates.

And these have therefore increased, “from 0.15 to 0.45 points depending on the duration of the loan and the profile of the borrowers”, notes the broker Meilleurtaux. The average rates offered, excluding insurance, currently amount to “1.25% over 15 years, 1.45% over 20 years and 1.65% over 25 years”, indicates Sandrine Allonier, director of studies for the broker Vousfinancer. But significant differences are still offered depending on the income levels of the borrowers. Thus, according to the Pretto broker, over 15 years, the rates vary from 1.53% for those who earn less than 40,000 euros annually to 1.18% for those who receive more than 80,000 euros per year. Over 20 years, rates can go from 1.62% to 1.29% and over 25 years, from 1.77% to 1.44%”.

10-year rates are soaring!

And yes the rates are soaring and no, it’s not “only” the fault of the war in Ukraine, the evil Putin or even energy prices or even inflation.

No, what is pushing rates up is quite simply that the central banks have announced that they are going to… raise rates! The FED, the American central bank announces 7 rate hikes in the next 12 months. Considerable.

What is pushing rates up is also that central banks are stopping buying everything back and feeding the bond market! Central banks are phasing out their asset purchases. Result ? There is less silver in the markets, and silver prices are going up which makes a lot of sense.

Watch the rate hikes!

Take France. The “1 Year” column means that over one year the French rate has increased by 122 basis points, which means 1.22%, if we are today (1st column) at 1.14% than a year ago the France’s rate was negative by 1.22% – 1.14%, i.e. – 0.08% negative rates.

It was the blessed and bewildering time when you had to pay to invest your money!!!

With a 10-year rate today of 1.14% to which you can add a bank margin of 0.30%, we quickly arrive at 1.40 or 1.50% excluding insurance for a mortgage rate.

If central banks continue their monetary tightening, then rates will continue to tighten.

In the short term, we should quickly see borrowing rates for real estate above 2% and then 3% while prices remain very high.

We should have a market trending lower in the next few weeks.

However, this movement will not necessarily be sustainable, because at the end of the road and if we let rates rise too quickly and too high, there will be a bond crisis, a real estate crash and above all, a crisis in the solvency of States.

The central banks will therefore have to quickly come to limit the enthusiasm of the market and intervene to regulate the interest rate markets.

In the meantime, watch out for real estate.

It is already too late, but all is not lost.

Prepare yourselves !

Charles SANNAT

“Insolentiae” means “impertinence” in Latin
To write to me charles@insolentiae.com
To write to my wife helene@insolentiae.com

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Source Challenges.fr here