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The French particularly appreciate real estate investments. Owning your own home remains essential for the vast majority of the population. Should the macroeconomic situation encourage the French to postpone their real estate projects or, on the contrary, should they quickly realize them? All our explanations to properly prepare for your real estate purchase in this troubled environment of inflation and rising rates.
According to a survey conducted by opinionWay for the Artémis group in February 2020, 92% of French people consider it “essential or important” to become the owner of their home. And second homes are also popular with private investors (3.2 million second homes in France according to an INSEE study published on 25 August 2021), as well as rental property investments (more than one in two French people already have made a rental investment or is considering doing so according to a survey conducted by the Poll & Roll Institute in 2021 on behalf of Masteos, a start-up specializing in turnkey rental investments).
Rates go up
The high inflation we have been experiencing for several months now has prompted central banks to review their policy. To curb the rise in prices, two main levers are at their disposal: stopping asset repurchases (end of quantitative easing) and raising key rates. These two monetary tightening tools put in place by central banks are both effective, but we will focus more on raising key rates, which has a direct impact on individuals considering a mortgage.
Indeed, the key rates set by central banks correspond to the rate at which they lend money to banking institutions. When this rate increases, the banks pass this increase on to the loan rates they themselves grant to businesses and individuals, and in particular to the rate of mortgages, which increase from month to month. Thus, in June 2022, Cafpi customers were able to borrow on average at 1.29% in 15 years against 1.22% in May, 1.42% in 20 years against 1.35% of May and 1.57% in 25 years against 1.51% in May.
Read also: State of the real estate market in Paris and the Paris region in the summer of 2022
Slower than inflation
Despite this significant increase in mortgage rates, it is clear that it is still very profitable for a family to take out a mortgage as the French can now finance their real estate projects at rates well below inflation. Recall that in June 2022, in one year, the consumer price index increased by 5.8% according to INSEE. And the National Statistical Institute predicts inflation around 7% in 2022.
Real estate: a tangible investment
It is therefore particularly advantageous to get into debt to finance your real estate project. Let us remember that the value of a property can certainly fluctuate but that this tangible investment, which is reassuring, has often been a bulwark against inflation. The real estate sector not only represents an investment that does not depreciate in times of inflation, but even tends to appreciate.
Buying stone: an ideal investment in these difficult times?
It’s still! The market is showing signs of slowing down. It must be said that, not to mention a bubble, the real estate sector has recently captured a large part of the investments of individuals and institutions.
Hence, the rise in policy rates, which leads to a very rapid rise in interest rates from month to month, causes a deleterious scissor effect for low income people. They can no longer necessarily borrow without exceeding the maximum debt ratio of 35% given the increase in interest rates and / or can no longer necessarily obtain a loan due to the low level of usury which increases less rapidly than interest rates . In fact, interest rates started a continuous rise when the usury rate, taking into account its calculation method (average rates actually granted in the previous quarter, plus a margin of one third) only rises every quarter.
Furthermore, another measure should not encourage investors to opt for rental investments and could also have consequences for the real estate market as a whole: the ceiling on the increase in rents desired by the government, to a maximum of 3.5%, for one year, to limit the impact of inflation on tenants, but which will be unfavorable to landlords.