Mortgage lending rates have hit a record low. For more than 70 years, borrowers have not had nominal rates below 2.90%. According to the Good Finance observatory’s monthly report, the average mortgage loan stood at 2.85% in May 2019.
The household solvency indicator is recovering while the cost of mortgage loans is falling. Homeowners who took out their loan at a time when rates were higher than today, would be well advised to request a loan repurchase.
Real estate rates are doing prowess
The record was broken down
According to the study conducted by the Good Finance observatory, you have to go back to the 1940s to find such low mortgage rates. An average of 2.85% is what borrowers could benefit from buying homes. The previous downward record was reached last year at that time. In June 2013, the average nominal rate recorded was 2.90%.
The mortgage brokers who, eager to sell, had predicted a rate hike, are at their expense. And yet, the drop in the key Best Bank rate could have inspired them better. No one can say today if the trend will reverse, continue or if rates will stabilize.
A difference of 9 points compared to April
The real estate sector was already rubbing their hands in April. Average rates fell to 2.94%, including 2.93% in the old and 3% in the new. The performance was even better in May, with 9 points less on average. If home loans for new programs only earn 2 points, in the old one we have gained 8 points.
The figures are even better in the construction market. The Good Finance survey shows that rates fell to 2.79% in May, compared to 3.12% in December 2013.
We hardly borrow above 3.5%
Almost all borrowers in May 2019 took advantage of the low rates. Figures from the Good Finance survey show that 92.3% of mortgage loans were granted below 3.5% of the nominal rate. This leaves only 7% of contracts between 3.5% and 4%, and 0.6% from 4% to 4.5%. No mortgage has been granted above 4.5%.
Better household solvency
Another factor came to give balm to the hearts of first-time buyers. The fall in the prices of old real estate, even if it is small, allowed buyers to have a greater personal contribution. While in 2013 they generally benefited from less personal capital than they could raise in 2012 (-5.6%), the situation is now reversed. The level of personal contribution from buyers has recovered by + 2.6% over the first 5 months year-on-year.
A consequence of lower rates: costs decrease
A direct consequence of the rate cut is the decrease in credit costs. Borrowers for April will need 3.82 years of income to pay the interest. Those in May will only need 3.77 years of salary. However, we note that the cost of real estate operations has been rising since the start of 2019. With + 0.9% in the first 5 months, the variations closely follow that of inflation.
Almost 22% of mortgage loans over 15 years
The low mortgage rates allow households to repay shorter. While it took an average of 205 monthly payments (17.1 years) to repay the loans taken out in April, it only took 202 months (16.8 years) in May.
Out of all the contracts signed in May 2019, only 0.6% report to repayment terms of more than 30 years. 21.9% of the mortgage loans taken out will be repaid over less than 15 years. 63.3% will last between 15 and 25 years, while 14.2% will be reimbursed between 25 and 30 years.
We borrow almost more at a variable rate, and yet …
The low mortgage loan rates observed in recent months have made the variable formula less attractive. The borrowers choose the fixed-rate, which however is not always relevant. In a previous article, Good Credit drew the attention of its readers to hybrid rate borrowing.
In a hybrid (or mixed) rate mortgage, the borrower benefits from a repayment period at a fixed rate, followed by another at a variable rate. Traditionally, the rate for the fixed period is lower than the average market rate, like a call. When the variable part allows variations up to + 1%, it is possible to insert a clause for waiving the prepayment penalties. This formula, therefore, remains interesting for buyers wishing to resell in the short or medium term.
Unrecognized mortgage costs
The above figures include only the nominal rate. They do not report to loan repurchases or bridging loans. Banks generally ask buyers for a personal contribution sufficient to pay the notary fees. A study commissioned by Good Credit shows that between 80% and 90% of couples have benefited from a personal contribution to their mortgage.
Evolution of real estate rates for 6 years
From 5.1% to 2.85%
In October 2008, average home mortgage rates were 5.1%. Households that borrowed loan requirements 200,000 over 20 years 6 years ago should pay loan requirements 119,436.37 in interest. At this rate, they will be lucky if after 20 years the value of their accommodation is greater than the total amount spent.
In May 2019, average home loan rates were 2.85%. Households having borrowed loan requirements 200,000 over 20 years should only pay loan requirements 62,616.99 in interest. At this price, it is already easier to realize the capital gain.
Let those who borrowed in 2008 reassure themselves, they have the solution to buy back credit.
Redeem your mortgage
The Consumer Code authorizes any borrower to have his debts redeemed by another organization. Credit buy brokers suggest finding a bank to take over your current home loan. If you had borrowed when the average nominal rate was higher than today, you are likely to save over time.