Real estate: should you buy despite rising interest rates?

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The French especially appreciate investing in real estate. Owning your home remains important for the majority of the population. Should the macroeconomic situation encourage the French to postpone their real estate projects or, on the contrary, should they materialize them immediately? All our explanations to properly prepare for your real estate purchase in this turbulent context of inflation and rising rates.

92% of the French consider it “important or important” to own their home according to a survey conducted by opinionWay for the Artémis group in February 2020. And second homes are also popular with private investors (3.2 million second homes in France according to an INSEE study published on August 25, 2021), as well as investment in rental property (more than one in two French people have already made one you invest in rental or are 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 investment).

Rates will go up

The high inflation we have experienced for several months now has led central banks to review their policy. To prevent rising prices, they have two major levers at their disposal: stopping asset purchases (ending quantitative easing) and raising key rates. These two monetary tightening tools deployed by central banks are both effective, but we will focus more on the increase in key rates, which have a direct impact on individuals considering a mortgage.

In fact, the prime rates set by central banks correspond to the rate at which they lend money to banking establishments. When this rate increases, the banks pass on this increase in the loan rates that they provide themselves to businesses and individuals, and especially in the mortgage rate, which increases every month. Thus, in June 2022, Cafpi customers were able to borrow an average of 1.29% in 15 years against 1.22% in May, 1.42% in 20 years against 1.35% in May and 1.57% in 25 years against 1.51% in May.

Also read: State of the real estate market in Paris and the Paris region in summer 2022

Slower than inflation

Despite this significant increase in mortgage rates, it is clearly more advantageous for a household to obtain a mortgage because the French can now finance their real estate projects in rate lower than inflation. Remember that in June 2022, more than a year ago, the consumer price index increased by 5.8% according to INSEE. And the National Institute of Statistics expects inflation to be around 7% in 2022.

Real estate: a tangible investment

So it remains more profitable to take a loan to finance your real estate project. Remember that the value of a property can fluctuate but this tangible investment, which is guaranteed, is always a protection against inflation. Real estate not only represents an investment that does not depreciate in times of inflation, but it tends to appreciate.

Buying a stone: an ideal investment in these turbulent times?

And yet! The market is showing signs of slowing down. It must be said that, not to mention a bubble, real estate has recently acquired a large share of investments by individuals and institutions.

Then, the increase in key payments, which leads to very rapid increases in interest every month, will cause a devastating scissor effect for people with low incomes. They can no longer borrow without exceeding the maximum debt ratio of 35% due to rising interest rates and/or no longer need to be given a loan due to the low level of wear and tear which increases faster than interest rates . The interest rates actually started a continuous rise when the usura rate, considering its method of calculation (average rates actually given during the previous quarter, plus a margin of one third) only in every quarter. .

In addition, another measure should not encourage investors to choose rental investments and may even have consequences for the real estate market as a whole: the ceiling on the increase in rents desired by the government , at 3.5% maximum, within a year, to limit the impact of inflation on tenants, but it is not favorable for landlords.

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