In the second quarter of 2021, mortgage rates reached their lowest level in 20 years, while at the same time the average loan term increased and reached its highest level ever.
Rates at 20-year lows
According to the latest barometer from the Crédit Logement/CSA observatory, covering the 2nd quarter of 2021, interest rates on mortgages have reached their lowest level in 20 years. They average 1.06%, and early figures for July suggest even lower rates, averaging 1.05% excluding guarantees and insurance.
Interest rates are falling on both the new and existing home markets, regardless of the term of the loan.
This reduction benefited all borrowers, including those whose profile was not ideal in the eyes of the banks, due in particular to a low down payment. In June, they benefited from a reduction of 22 basis points on the longest 25-year loans, compared with 5 basis points for borrowers with the best profiles. Despite the slower decline, the latter still managed to obtain loans at an average rate of less than 1%, whatever the term.
Longer and longer loan terms
At the same time, loan terms have been increasing since the start of summer 2020, to offset rising prices and keep household affordability below 35%, as required by the recommendations of the French High Council for Financial Stability.
In Q2 2021, the average term of mortgages granted was 234 months, a figure that rose in June to 237 months, the highest level ever seen.
According to figures from the Crédit Logement/CSA observatory, the average term of home loans granted has lengthened by 8 months since December 2020. Borrowers with an income of less than 3 SMIC benefited most from this increase in loan duration, with an extension of 10 months between December 2020 and June 2021, giving an average duration of 242 months in June.
However, despite the advantageous conditions, certain obstacles remain, particularly for borrowers without a sufficient downpayment, the average amount of which continues to rise as banks become increasingly demanding in this area. Following a downward trend over several years, the down-payment rate rose by 12.6% in the first half of the year, after having already risen by 10.7% in 2020.
What's more, the Haut Conseil de Stabilité Financière (HCSF - French Financial Stability Board) limits the term of mortgages to 25 years, which means that repayments cannot be spread over a longer period, thereby automatically lowering the affordability of less well-off households.
The banks, which were entitled to depart from the HSCF's recommendations up to a limit of 20% of files, largely exceeded this threshold, sometimes reaching 30%. But with the Autorité de contrôle prudentiel et de résolution (ACPR) having announced forthcoming controls, it's a safe bet that the recommendations will now be followed more closely.