It’s time to take out a mortgage!
On Thursday March 3th Jean Claude Trichet, the President of the European Central Bank made a revelation: an important increase of rates is foreseen in April.
The United States is desperately trying to stimulate the economy using the interest rates.
On this side of the Atlantic a dangerous denial reigns with the upturn of bonuses and exorbitant advantages of banks and even more of the so-called “ghost banks”. The Dow Jones is well ahead as if the outside world didn’t exist. It has risen by 200 points (1.7%) while Bagra is being bombed by Gaddafi.
This increase is a complete surprise for everyone. Indeed, markets and investors thought that the European Central Bank would follow the same route for the rates of the Euro as the Federal Reserve did for the dollar.
This rise of the interest rate implemented by the European Central Bank is very fundamental. It is a careful management of the current imbalances.
It will permit a fight against inflation. The European Central Bank takes into account an environment in the Eurozone which is more and more affected by price tensions. We can’t ignore the tensions over the oil markets, even if they’re not natural, but essentially due to the speculation. What’s happening in the foodstuffs market is even more scandalous. Harvests are good, but prices are increasing. The difference goes straight into the pockets of wheat, sugar, rice, cocoa, coffee traders … and many more.
It also adjusts the levels of rates by integrating which has becoming a dangerous business in the Eurozone. When it takes out a loan under its name, the Eurozone doesn’t have the mark AAA and it pays a half percent more than Germany. It also takes into account the fact it has at least four countries out of seventeen in difficulties, and a few others which could follow their bad example.
The European Central Bank needs to carefully manage the risk of its own affairs which have rocketed further with the purchasing of sovereign bonds from these countries. It does it with lower rates to those who prevail over the markets. So it has decided to go one step further and gradually transfer the responsibility of these bonds to private investors. By doing this, the Bank will recreate margins for manoeuvre essential for future interventions.
It also send a message to banks : the interest margins of their loans are very generous as they supply the bonus-paying machine to undeserving traders, but also benefit from the gap of exorbitant rates between their borrower rate and active rates that they have in their portfolio.
Finally it breaks certain illusions: the situation couldn’t go on forever. The recent booms of the Paris real estate market have created a bubble which is supplied by easy money. To avoid a brutal correction, the increase in price of borrowing money is an efficient way to slow down an enthusiasm which benefits principally to landowners who do not really need this largesse.
So if you are going to buy a French property and need a mortgage here is some advice: take out a long term mortgage with fixed rates before April 2011!
For more information and advices do not hesitate to contact Sextant French Mortgages on 020 7428 4918 or by email on [email protected]