Containment measures related to Covid-19 have considerably limited economic activity in France and other countries. And the mortgage sector has not escaped this crisis. The housing loan is often used by most investors wishing to acquire real estate.
However, in the face of the pandemic, banks did not grant new loan applications. We have also witnessed a drop in the production of real estate loans. These establishments have mainly focused on files already in progress. Since the announcement of confinement in France, the real estate market has stopped. And to allow the realization of a real estate project, the financial institutions have extended the Duration of a mortgage, which is now 231 months on average.
Interest rate hike
The pandemic has affected all areas of daily life and the economy. And housing credit could not escape this crisis. Banks face many risks, which prompted them to review their interest rates. During the last three months, the average rate was 1.40%. For a loan with an exchange date over 20 years, the rate is 1.10%.
Fortunately, the announcement of deconfinement gave a boost to financial institutions which revised their rates. The gradual evolution of the interest rate slowed down during the month of June. In July, an average rate of 1.26% was recorded. Whatever the duration of the credit, the rate cannot fall below 1% this year.
Are real estate loans still granted by banks?
During the crisis period, banks did not process new applications for mortgages. These establishments have mainly focused on current files, due to the reduction in their workforce, but also the obligation to work from home.
However, things could change in the medium term. Banks have liquidity and their role is to lend. In addition, mortgages are a risk-free investment for banks. Moreover, these institutions want more guarantees. The Real Estate Barometer indeed reveals a rather surprising trend. Indeed, banks are beginning to favor households with a larger personal contribution. The wealthiest people are now their main target.
How is the mortgage market evolving after the crisis?
The mortgage market in France experienced strong growth in February 2020. Unfortunately, this trend was halted by the coronavirus. And after a recovery in June, activities still seem to be slowing down.
Indeed, the market has not yet returned to the level reached in February. The number of loans granted during the month of June fell by 9.8%. On the other hand, borrowers continue to submit loan applications, even since the confinement. This reflects the state of the current real estate market. The crisis has forced banks to review their strategy, by extending the duration of credit, but also by making a careful selection of their customers in order to limit the risks. Opposite, consumers rush to these establishments in order to have a safe investment.
