Mortgage interest rates in 2021: evolution and trends

The year 2020 demonstrated relative stability in interest rates for mortgage borrowing, despite the pandemic and the concerns it raised. In 2021, the more concrete recovery in activity provides a clearer picture of the direction the mortgage lending market is taking for the months ahead, thanks to the previous rate movements. Let us put this data into perspective, in order to project forward and estimate whether late 2021 is shaping up to be a favourable period for committing to a property acquisition project.

A 2021 start under the sign of falling rates

To measure the impact of the current rate evolution, let us first place 2021 in the historical banking context of the previous years. If we take some key reference points, we note average rates observed of approximately: • 1.32% in April 2019, • 1.11% in December 2019, • 1.27% in June 2020, • 1.15% in December 2020.

The onset of the health crisis was marked by a surge in interest rates, easily explained by concerns about a possible collapse in prices or demand. However, it did not take until year-end for the average rate to resume its decline. It is therefore quite interesting to verify whether this trend continued this year, and the answer is yes: from the start of 2021, the average rate stood at 1.13% in the first quarter.

A new decrease in rates observed each quarter

The second quarter surprised specialists again, with an average rate dropping to 1.06% in May and June, representing a decrease of 9 basis points compared to December.

A distinction can be made according to household income levels. Buyers earning less than 3 times the national minimum wage thus secured their loans, on average, at 1.11% while those whose income falls between 3 and 5 times the minimum wage obtained 1.04%. The prize goes to incomes exceeding 5 times the minimum wage which, at 0.94% on average, obtained rates crossing the 1% threshold. Even over 25 years, this category manages to stay below this symbolic threshold. This effort by the banks is explained by the lower risk of lending to wealthier individuals.

In the third quarter, rates again recorded a slight decrease, for an average placement at 1.05%. However, the downward trend continues, especially considering that these rates are being granted for terms experiencing a relatively significant increase: 237 months in June, against an average of 231 months in the first quarter. October appears to break new records, with forecast rates at 0.78% over 15 years, 0.96% over 20 years and 1.16% over 25 years. They would even reach respectively 0.52%, 0.63% and 0.89% over the same terms for the strongest applications.

Is this the right time to borrow?

If you are asking yourself this question, keep well in mind that 2021 offers not only more advantageous rates than those observed since the start of the pandemic, but even lower than the 2019 rates. Conversely, fewer loans are being granted: 13.6% fewer in the first half of 2021, compared to the first half of 2019 (the decline had been even more significant in 2020).

The lesson to be drawn from this is that banks are being more selective. Beyond the HCSF’s rigour recommendations on debt-to-income ratios, made as early as 2019, banking institutions are keen to rule out the highest-risk applications, in a context where a household’s economy can also shift due to the health aspect leading more easily to inability to work or increased economic difficulties. It is the youngest and most precarious applicants who are bearing the brunt of this policy, adopted by banks less inclined to extend trust.

Nevertheless, the same banks must meet their high lending targets for the year, and are actively seeking financing applications. By late 2021, it will likely be possible to negotiate historically low rates, on the sole condition of showing a clean record and a rock-solid application.

Notably, proven professional stability, a good level of personal contribution (10% minimum, 20% for greater peace of mind) and a debt-to-income ratio below the 35% threshold will be essential conditions. Also plan to present statements free of negative balances over the last three months, and settle if possible any other loans you may have outstanding.

With property prices continuing their upward trajectory, it seems risky to wait another six months to launch a project that can today enjoy the most advantageous financing conditions ever granted. All the more so as rates should logically rise again driven by inflation which has already resumed its upward path: this respite – or this inertia – seems a favourable moment for the completion of an acquisition!