Engel & Völkers Licence Partner Montgomery > Blog > Real estate loans: New historic cut for the "20-year fixed rate"!

Real estate loans: New historic cut for the "20-year fixed rate"!

This is certainly an exception, but a well-known Belgian bank recently gave one of its customers a rate of 0.70% on their loan. For buyers and sellers alike, the market is currently profitable for all real estate players. So the time is right for completing an advantageous transaction.

A case demonstrating the current trend

While what are known as "long" rates continue to rise in the bond market, mortgage rates are not benefiting from the same trend (at least not yet). A few weeks ago, a borrower therefore obtained an exceptional rate of 0.70% for a fixed-rate loan for a period of twenty years. "It's actually possible that a rate of 0.70% was granted to one of our borrowers whose application was very solid", the bank in question recently confirmed.

However, we can see a contradictory trend: the trend of the 10-year OLO yield (the interest rate paid on Belgian government bonds) which currently re-entering positive territory. Which is a first since June 2020. When the OLO experiences an increase, the mortgage loan rate goes up in turn.

Effective competition

Experts are seeing that it is the competition inherent in the mortgage market that is at work in the current context. This creates delays when it comes to aligning mortgage rates with rates observed on the bond market. Although banks are offering minimum interest rates, a customer who signs a mortgage loan in these circumstances has very probably opened a deposit account at the same bank. They also have to have their salary paid into this bank and for example, have taken out insurance covering fire risks or a policy covering their mortgage balance.

This same customer also have to present solid collateral for their initial deposit. As a reminder, banks cannot theoretically grant loans in amounts of more than 90% of the value of a property (80% in the case of a loan used for investment). The customer also has to guarantee disposable income after deduction of outgoings (repayment of the loan should not represent more than 33% of the borrower's income).

By borrowing over twenty years at a rate of 0.70%, the loan quota is significantly lower than the thresholds imposed by the National Bank. As the borrower's disposable income is higher, this means they can live comfortably , with less financial pressure.

An ideal time to negotiate!

All applications are assessed individually. The definition of rates and the loan decision are based on a very large number of factors. The borrower's ability to repay their loan, the loan-to-value/loan-to-transaction and the personal deposit are among the most important factors.

This then is an advantageous period for people wanting to negotiate a mortgage loan. Whilst not quite reaching the above-mentioned record, the negotiation margin with this Belgian bank remains attractive, as its posted rate is 3.30% for a 20-year fixed-rate loan!

This is the time to sell your property

Whether you are a seller or a buyer, the market is currently very dynamic, benefiting all players in the sector.

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