Interest rates 2021: new records ahead

Historically low rates in 2019 gave way in 2020 to uncertainty that penalised the property market. The start of 2021 should provide some reference points, as the impact of the health crisis is clearly disastrous but no longer inspires particular fear. Analysis of the last few months demonstrates this, and even holds some surprises opening new perspectives.

The rate trend observed over the last 3 months

A wait-and-see stability

In December last year, as in January, the monthly report from the Observatoire Crédit Logement shows stability in 20-year rates at 1.17% for existing properties and 1.20% for new builds. As the health situation had not yet been clarified and the coronavirus vaccine was proving its worth, it seems logical that banks’ guiding line had not evolved.

A reduction had been announced in the schedules from banking establishments, which were probably anticipating an upturn for employment and the financial world soon.

February launches the signal of a… historic decline!

The first grids received for February show interest rates in sharp decline. The average stands at 0.84% over 15 years, 1.01% over 20 years and 1.26% over 25 years. These borrowing rates are lower than those, already historically low, reported for December 2019.

Excellent applications (over €60,000 of income for a single person or over €80,000 for a couple) can even obtain rates below 1% regardless of duration, according to the rate barometer from Meilleurtaux. But all borrowers benefit from more advantageous conditions. This gives a serious boost to households’ overall property budgets.

Reasons for the decline in interest rates

Facilities granted by the ECB

The European Central Bank wants to maintain favourable financing conditions despite the health crisis. By lending to banks at a zero key interest rate, it strengthens their competitiveness and enables them to offer extremely attractive credit offers.

Interbank competition

Credit targets to be achieved push banks to make tempting offers at the start of the year. Attracting applications before they are captured by the competition is facilitated by displaying interest rates at their lowest.

So much for profitability; banking establishments are counting on a whole range of other products that their customers will be (strongly) encouraged to take out subsequently: home and car insurance, life insurance contracts, various savings accounts, etc.

Rarity of property projects

In the same way that banks were cautious in 2020 and refused to grant certain loans, the health crisis has made households cautious and has certainly delayed many property acquisition projects on their side. The debt ratio noted at 35% by the Haut Conseil de Stabilité Financière (HCSF) was not enough to ignite acquisition hopes—and for good reason: economic prospects remain uncertain.

In such a context, it is necessary for lenders to conquer as quickly as possible the rarer projects that are emerging. The interest rate is once again the ultimate weapon.

Prospects for 2021

A property purchase?

As you can see, the first half of 2021 looks favourable for carrying out your property project. However, be careful only to launch if your economic future is perfectly clear. The commitment should not be taken lightly, especially for first-time buyers.

If your sector of activity is impacted by the health crisis, it may be wiser to wait a few months. If the purchase is essential for you, ensure you have a safety net: keep as much of your deposit as possible as possible financial support in case of emergency, or plan the possibility of receiving help from relatives if needed.

Renegotiating a loan

The announcement of these unseen rates may encourage renegotiating a necessarily more expensive loan. However, beware of the costs involved, which can reach up to 3% of the borrowed capital and penalise the expected gain. An gap of one point between the old and new rates is considered a rule ensuring you find benefit in the process. If your credit is less than 5 years old, the large portion of interest you still pay each month can also make the operation more worthwhile.

It remains to set your objectives before approaching other banks: do you wish to reduce the duration of the credit and stabilise or even increase your monthly payments, or would you prefer to make monthly savings while keeping the same duration or extending it? Each will bring their own answer to this question, which depends on their personal context.

The decline in interest rates, like the early arrival of a vaccine against Covid-19, is bearing hope. Better days certainly await us in 2021, a year that will soon relegate the terms lockdown and curfew to simple memories, let us hope. In the meantime, the property market will see itself dynamised, and that is already good news!