Mortgages: a review of mortgage rates at the beginning of 2022

Low interest rates, a key driver of the property market, have been helping sustain demand for several years. And they’ve never been so low.

Interest rates at rock bottom

According to statistics issued by the Bank of France for the month of November 2021, the average mortgage rate was 1.12% as opposed to 1.13% for the previous month. And, according to the Observatoire Crédit Logement/CSA, a loan guarantee organization, the average mortgage rate, regardless of duration, was 1.05% in the fourth quarter of 2021, which was broadly stable compared to the previous quarter.

“Almost all rates are well below inflation, something which hasn’t happened since the early 1960s, even after the first oil crisis when inflation rose to 14.2% in 1974. This allows banks to support applications for individual loans,” notes the Observatoire.

However, after years of cuts in mortgage rates, the relative stability observed at the end of 2021 could indicate that interest rates will not fall any further in 2022.

Rate reductions for the most attractive applicants

Banking institutions announce their average mortgage rates every month. These rates can vary from 0.91% over 15 years to 1.23% over 25 years. However, these are just average rates as some banks don’t mind lowering their rates to less than 1% for attractive applicants: namely, those with large deposits, high income, significant disposal income or who are borrowing over a 25-year period.

An inflationary context

The return of inflation could, however, have an impact on interest rates. “Inflation is expected to remain high in 2022 with a slow-down from summer 2022. In the increasingly likely event of the pandemic receding this summer, the ECB is expected to gradually normalize its monetary policy while leaving its base rates unchanged until at least Spring 2024. In this context and after the tensions of the first few months of the year, according to most banking scenarios, the average yield on 10-year government bonds (OATs) will be between 0.25% and 0.4% in 2022, compared to the Bank of France rate of just 0.1%,” according to Crédit Logement. 

And mortgage rates could follow this trend “In the absence of tightening of the current regulations, mortgage rates would increase by a maximum of 20 to 25 basis points in 2022: in 2022 mortgage rates would simply return to their average annual 2019 level.” No turnaround in the property market is expected in 2022, with mortgage rates still extremely low which will help offset price increases throughout France.