2021 Interest Rates : New Records in Sight
In 2020, the exceptionally low prices in 2019 gave way to the penalization of real estate sector volatility. Any milestones should be rediscovered at the beginning of 2021, with the effects of the health crisis evidently catastrophic but no longer causing particular terror. This is seen by the study of the last few months, and also reserves a few surprises which open up new perspectives.
Changes in rates observed over the last 3 months
A wait-and-see stability
The monthly survey from the Housing Credit Observatory showed steady values over 20 years at 1.17 percent for old and 1.20 percent for new, both last December and in January. As the health situation has not yet been explained and the vaccine against coronavirus is on the verge of being confirmed, it seems sensible that bank recommendations have not updated.
Nevertheless, a decline in the size of banking institutions has been announced, which is likely to expect a cleaning up for jobs and the financial world in the near future.
February sends the signal for a… historic decline!
The first timetables received for the month of February indicate a sharp decline in interest rates. Thus, the rate is 0.84% over 15 years, 1.01% over 20 years, and 1.26% over 25 years. Such borrowing rates are smaller than those registered for December 2019, which are still traditionally low.
The Meilleurtaux rating barometer informs us that excellent files (more than € 60,000 in revenue for a single individual or more than € 80,000 for a couple) can also get ratings of less than 1% regardless of the period. But more favourable terms favour all creditors. Enough to give the overall household real estate budget a serious lift.
The reasons for the drop in interest rates
The facilities granted by the ECB
Despite the health crisis, the European Central Bank wants to maintain desirable financial terms. It reinforces their flexibility by lending to banks at a main rate equal to zero and enables them to offer highly lucrative loan deals.
Interbank competition
At the start of the year, the lending goals to be met encourage the banks to offer enticing deals. It is made simpler to attract cases until they are taken up by the competition by posting lower interest rates.
Too bad for profitability, financial companies are betting on a whole armada of other items that will be (strongly) encouraged to be carried out by their clients afterwards: home and auto insurance, life insurance contracts, new passbooks, etc.
The scarcity of real estate projects
The health crisis has made households wary, just as the banks were cautious in 2020 and declined to grant those loans, and has definitely held back numerous real estate acquisition projects. The debt ratio raised by the High Council for Financial Stability (HCSF) to 35 percent was not adequate to spark acquisition expectations and for good reason: the economic future remains unclear.
In such a setting, the rarer ventures that arise as soon as possible need to be conquered by lenders. The interest rate is the ultimate tool again.
Outlook for 2021
A real estate purchase?
If you will see, for the realisation of your real estate dream, the first half of 2021 promises to be favourable. However, be careful not to get started until the financial outlook is completely clear. The dedication, especially for first-time purchasers, should not be taken lightly.
It might be wiser to wait a few months if the industry is threatened by the health crisis. If the transaction is vital to you, make sure you protect your back: keep as much of your donation as possible financial help in the event of a hardship, or intend to accept assistance from family if appropriate.
Renegotiating a loan
Announcing these unparalleled rates may facilitate renegotiation of a loan that is inherently more costly. Be vigilant, however, of the expenses accrued, which can exceed up to 3 percent of the capital lent and penalise the anticipated benefit. We assume that a one-point gap between the old and the new rate is a law that assures the advantages of the operation. The huge amount of interest you still pay per month will even make the deal more appealing if your debt is less than 5 years old.
Before telling other banks, it is important to set your objectives: do you want to shorten the length of the loan and stabilise or even raise your monthly payments, or do you want to make monthly savings by maintaining or increasing the same duration? To this question, each will have their own response, which depends on their personal background.
Falling interest rates, such as the early arrival of a vaccine for Covid-19, are positive. Better days surely await us in 2021, a year which, ideally, would quickly relegate the conditions of containment and curfew to the rank of mere memories. The real estate industry will see itself improved in the future, and this is positive news already!