Mortgage rates in France have been at historic lows for a number of months. However, the outlook for the next move in interest rates has changed markedly over this period of time.
During the summer, expectations were that French mortgage rates would be rising before the end of 2013. In the early autumn, this was pushed out to early spring 2014, and now – following the release of the latest Eurozone inflation data – there is talk about the possibility of a Eurozone rate cut before the end of the year!
Here we are going to look at the key factors that are likely to influence French mortgage rates over the coming months.
Central bank interventions currently dominate world financial markets. The US Federal Reserve’s $ 85 billion per month bond-buying programme, The Bank of England’s preference for forward guidance and the European Central Bank’s insistence on doing whatever it takes to save the Euro are all having an impact in keeping both interest rates and borrowing costs low.
The most significant of the factors mentioned above is the Fed’s bond-buying programme. Financial markets were fretting over the summer as to when the Fed taper – at which point this buying programme will start to slow down – is likely to kick in. Expectations that this would start towards the end of 2013 caused an Emerging markets sell-off over the summer, but a number of factors have ensured that D-day now looks like it will be pushed back further into 2014.
A number of factors explain this. These include the US budget stalemate and federal shutdown, the nomination of the more dovish Janet Yellen as Ben Bernanke’s replacement at the head of the Federal Reserve, and the very gradual pace of economic recovery in the western world.
Eurozone inflation figures released on Friday 1st November have thrown a further cat among the pigeons, having come in at 0.8% (below market predictions of 1.1%). The fact that the Eurozone inflation target currently sits at 2.00% has prompted some market commentators to suggest that the ECB will need to cut interest rates to stimulate demand and therefore inflation.
You may ask: why would this affect French mortgage rates and borrowing costs?
As the world’s leading economy, the Federal Reserve’s current approach is lowering borrowing costs both in Europe and the US.
Back in the summer, the majority of French lenders were expecting their mortgage rates to start rising by the end of 2013. However, that now looks like it will be delayed until later in 2014, with the possibility that the next move in French mortgage rates could in fact be downwards.
The 3 month Euribor index rate (currently 0.227%) has remained very consistent over recent months, and determines the rates payable on variable rate mortgages in France.
The Tec 10 index, which determines fixed rate mortgage rates in France, had been rising recently and some of the French lenders had started raising their fixed rates. However, since 16th October when the Tec 10 index reached its recent high, the index has fallen over 0.25% to 2.22% as of 1st November.
As the largest introducer of non-resident mortgages to the French lenders, at International Private Finance we are keen to use our unrivalled experience and market knowledge for the benefit of our existing and prospective partners and clients.
Recent discussions with the major non-resident French lenders have indicated that they are hopeful of increasing the number and volume of French mortgages they issue to non-resident borrowers during 2014.
Improving confidence among prospective property buyers, the prospect of French mortgage rates staying lower for longer or even falling, as well as increased appetite and lending criteria starting to filter through from some of the French mortgage lenders, are all positive signs for prospective buyers of French property and provide encouraging signs looking forward.
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Blog submitted by: Joe Wroe of IPF for The French Property Network - Cle France.
