Why mortgages are getting more expensive in France
French mortgage rates are rising sharply due to France’s high level of public debt and the wider global economic climate putting upward pressure on borrowing costs.
For anyone in France looking to buy a home or invest in property, the increase could make mortgages more expensive in the months ahead.
This is due to several factors. Geopolitical tensions, including the war in the Strait of Hormuz, are disrupting international trade and contributing to renewed price pressures in several major economies, including the US and Germany.
The other factor is more specifically French – the country’s high level of public debt. France is currently having to pay relatively high rates to borrow money on financial markets. A key moment came this summer when the yield on French ten-year government bonds exceeded four percent, reaching around 4.2 percent at its peak.
This is significant because France is now paying more to borrow than some other countries, including Greece, Italy and Spain. These countries, once seen as among the bloc’s most financially troubled economies, have taken steps to reassure investors and improve their public finances.
France, meanwhile, needs to convince investors that it can manage its debt. It can still borrow on the financial markets, but at a higher cost.
READ MORE: OPINION: France is in deep trouble over its debt
An increase in rates?
Banks take into account the cost of raising money themselves when deciding what interest rates to offer customers.
“Mortgage rates depend not only on central banks’ key interest rates, but also on the terms on which banks secure funding in the markets,” Paul Chollet, chief economist at Crédit Mutuel Arkéa, told Le Parisien.
For a 20-year mortgage, rates are now around 3.5 percent, compared with roughly 3 percent just a few months ago. That half-percentage-point difference can add several dozen euros to monthly repayments, depending on the size of the loan. Over a 20-year mortgage, the additional interest can add up to a substantial amount.
However, these figures are not necessarily what every borrower will be offered. Banks look at individual applications, taking into account factors such as income, employment situation, savings and the size of the deposit. Borrowers with a particularly strong application may still be able to secure rates of around 3.20 to 3.30 percent over 20 years.
What’s next?
The latest increase inevitably raises the question of whether people planning to buy should move quickly or wait for rates to come back down.
Waiting may be risky if borrowing costs continue to rise, the same property could become more expensive to finance in the future. Some economists, which France-Info describe as quite pessimistic, have even suggested that mortgage rates could reach four percent by 2027.
But the situation is not necessarily bad news for buyers. Property prices in France have been trending downwards in recent months, which could partly offset the higher cost of borrowing. In other words, a lower purchase price could help compensate for a more expensive mortgage.
