Can government censorship drive up real estate rates?

In the event of the fall of the government and no vote on the budget, there are fears of an increase in the rate at which France borrows at 10 years. And, by extension, on an increase in mortgage rates. But according to specialists, the impact should remain “limited”.

The real estate sector is subject to headwinds. Good and bad news follow one another on the rate side. In the first category, the bank scales which were released at the beginning of the month: they provide for rate cuts for real estate loans.

The broker Pretto mentions drops of 0.05 to 0.10 points this month with average rates of 3.21% over 15 years, 3.31% over 20 years and 3.38% over 25 years. For its part, the broker Vousfinancer records averages of 3.15% over 15 years, 3.35% over 20 years and 3.55% over 25 years, with more advantageous rates for the best profiles.

In one year, compared to December 2023, rates have fallen by almost one point. This represents a borrowing capacity of 20,000 additional euros. But will this clear improvement in purchasing power be short-lived?

At the forefront of the bad news is the political instability that France is going through with possible government censorship. In this case, fears about the trajectory of public deficit reduction are to be expected. What to reverse the trend?

“Censorship could put a pause on the trajectory of decline in mortgage rates, with the overall downward dynamic instigated by the ECB easing due to increased uncertainty,” predicts broker Pretto.

Don't panic

The fear also comes from a possible increase in the rate at which France borrows for 10 years (10-year OAT), and which influences the rates of real estate loans. But before panicking, Vousfinancer points out that the announcement of the dissolution in June and the elections which followed ultimately had no impact on real estate loan rates.

First of all, according to the broker's spokesperson, banks are relying less and less on this indicator. “They have freed themselves from state borrowing rates in recent years, it was mainly a benchmark 10 years ago,” she assures.

“What is most important today is the commercial policy of the banks, they want to attract new customers and for this they are ready to reduce their margins and absorb an increase in the OAT,” explains Sandrine Allonier.

Then, it is not certain that the 10-year OAT will climb or that this increase will be sustainable. When the National Assembly was dissolved in June, this rate had in fact increased from 3% to 3.30%, but not only had it fallen quickly (at the beginning of August), and it had no impact on real estate rates.

A limited impact on real estate rates

“There is no reason for it to be different this time,” says Sandrine Allonier. Because not only are banks showing a strong willingness to lend, but a further rate cut from the ECB is expected to take place on December 12. “If banks can borrow cheaper, they will be able to continue to lend,” assures the specialist.

“It is likely that the impact on credit rates remains limited,” judges Sandrine Allonier.

An index gives her some optimism: “The banks sent their scales in December, they could have waited but they chose to lower again,” underlines the specialist.

However, censorship would lead to the fall of the government but also of the finance bill and the measures in favor of real estate long awaited by the profession. Goodbye to the zero-interest loan for new properties for apartments and houses, or the tax exemption on gifts to children or grandchildren for a new property purchase.

“This lack of visibility does not encourage long-term investment and could halt the recovery that is taking shape, leading to a loss of confidence among both buyers and investors,” concludes Julie Bachet, general manager of Vousfinancer. “It’s one step forward and two steps back…”