The real estate market has stalled

Many families dream of becoming homeowners. While mortgage rates were particularly low during the pandemic, that has now changed. Across France, mortgage originations in August fell below the 10 billion euro mark in a month for the first time in seven years, according to the Bank of France.

The average interest rate on mortgages is now 4.5 percent, down from an average of 2.5 percent at the beginning of the year. The reason for this is simple. Due to inflation, central banks have decided to raise their interest rates, and the European Central Bank (ECB) has continued to do so for several months now, having made 14 increases.

High rates, paperwork difficulties

There were problems with getting a loan at the beginning of the year due to difficulties with the interest rate. It is set by the Bank of France at the end of each month (from February 2023) and is designed to protect against possible abuses. It includes the base interest rate (or nominal rate), an application processing fee, and borrower insurance (read also). A loan is considered abusive if its annual effective interest rate (AEIR, formerly TEG) exceeds a specified interest rate. The average effective interest rate applied in July, August, and September 2023 by lending institutions for 10- to 20-year mortgages was 4.16%.

Little technical detail, but at the beginning of the year the set interest rate created problems for many applications. Now the situation has changed. Added to this were other problems. "The rates are so high that applications are not being approved," explains Laurent Maillot, a partner at brokerage firm Lefinancement.re.

Debt load is slowing down purchases.

To visualize the situation, Laurent Mayo pulls out a calculator: "At the beginning of the year, you borrowed 230,000 euros for 25 years at 2.3%. The monthly payment averaged €1,000. Now the same loan will cost you 4.7%, which means a monthly payment of 1,300 euros." As a result, many customers can no longer afford to finance and purchase a home that fits their needs, as their income no longer allows them to exceed the maximum debt load of 35% of their total household income (as of January 1, 2022). In fact, you now need to earn €3,700 a month, instead of the previous €2,900...

Some banks are blocking, others are lending. Result...

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