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Mortgages: the end of very low interest rates

Published on April 15, 2022 - 3 mins reading time
Banks Credit/Lending Real estate

Interest rates on mortgages have risen by 16 basis points since December 2021, and this upward trend is set to continue into 2022. They reached 1.18% in March, according to figures from the Observatoire Crédit Logement/CSA, which forecasts average rates of 1.21% in April.

Mortgage interest rates on the rise since January

The days of very low rates seem to be over: since January 2022, mortgage interest rates have been rising steadily, even if at a slower pace than inflation.

While average rates were 1.06% in December 2021, they rose to 1.18% in March and are expected to reach 1.21% in April, according to estimates by the Observatoire Crédit Logement/CSA. The increase in mortgage interest rates is 16 basis points compared with last December.

In detail, in March, average rates were 1.01% for a 15-year mortgage, 1.13% for a 20-year mortgage and 1.25% for a 25-year mortgage. For the 1st quarter of 2022 as a whole, the average across all markets is 1.12%.

The impact of the war in Ukraine on the mortgage market

Rapidly rising inflation, shortages and supply difficulties, compounded since February 24 by the war in Ukraine, have taken their toll on the historically low rates seen for many years.

However, the rise in mortgage rates remains moderate compared with inflation, which rose by 4.5% in March, and the increase in the interbank rate, which has risen by 60 basis points since the beginning of 2022.

To reproduce the exceptional results of 2021, many banks are opting to keep rate rises to a minimum over the longest loan terms, leaving room for rental investors and first-time buyers.

In Q1 2022, the average term of loans granted reached a record 241 months, or 20.2 years. This compares with 163 months or 13.6 years in 2001. For investors and first-time buyers, this longer term helps to mitigate the impact of rising house prices and higher down-payment rates.

In Q1 2022, 63.3% of bank loans for the purchase of a principal residence were granted for terms of over 20 years.

The war in Ukraine has taken its toll on the mortgage market, with a 14.1% drop in new lending in March, and a 17.8% fall in the number of loans granted. Although the deterioration in purchasing power and the rise in interest rates had already slowed demand, production nevertheless increased by 2.1% over the first quarter as a whole.

Before Russia invaded Ukraine, the Observatoire Crédit Logement/CSA forecast average interest rates of around 1.30% in 2022. The Russian-Ukrainian crisis has forced the Observatoire to revise its forecasts upwards: average rates could reach 1.50 to 1.55% over the year.