Mortgages - It's in your interest to borrow or renegotiate in 2020

With an average rate of 1.12% across all maturities in November 2019, according to theObservatoire Crédit Logement CSA, bankers shouldn't be bored at the start of 2020. Borrowers will be taking advantage of the very advantageous conditions to invest in real estate. If they have already borrowed, they will be tempted to renegotiate their loans to reduce their monthly payments. A year in which money will continue to flow to fuel an already well-oiled real estate machine.

Low interest rates

If the record number of transactions has just been broken in 2019 - with 1,059,000 sales - this performance is largely due to the continued fall in rates in 2019. From an average of 1.43% in January 2019, according to the Observatoire Crédit Logement CSA, they fell to 1.12% last December. This is a good reason for buyers to go ahead with their project and take advantage of the opportunity to reduce the cost of their loan. An all-time low! Interest rates have been divided by 5 since the early 2000s. That's a saving of €58,000 on a €150,000 loan! Needless to say, purchasing power has improved despite rising property prices.

Lower monthly payments

This low interest rate environment is unlikely to change in 2020. As Jérôme Robin, founder of Vousfinancer , toldFigaro Immo: "For banks, mortgages remain the best way of attracting new customers, and lending rates are likely to remain very attractive in 2020". Individuals can therefore take advantage of the historically low interest rates to complete their real estate projects. Particularly in view of the social climate linked to pension reform, many French people are turning to real estate to supplement their income.

Good applicants can expect to obtain a rate of 1% for a 20-year loan. These conditions translate into monthly payments equivalent to rent. So it's better to repay a loan with a view to building up assets than to pay money for housing with no possibility of capitalizing on it.

Let's look at an example:

• Loan of €150,000

• Repayment over 20 years

• Loan rate at 1%.

• Loan insurance rate 0.36

• => Monthly payment: €735

With a monthly repayment of €735, this is no more expensive than renting an apartment or house of around 80 m2. According to the broker Vousfinancer, households are taking advantage of this to take on as much debt as possible. Its borrower profile shows that the average principal loan is €170,363 for first-time buyers, and €194,174 for all borrowers combined. As a corollary, this fall in interest rates makes it possible to buy bigger or to limit the amount of one's personal contribution.

Shorter repayment terms

Another lever created by lower interest rates is the shorter repayment period. For the same monthly payment, the amortization table does not show the same number of annual instalments for a 1% or 2% rate. This means that you can take on debt over a shorter period, allowing you to consider other projects... For example, a difference of one point for a €150,000 20-year loan translates into a gain of 2 years. A loan of €150,000 at 1% can be repaid in 18 years, instead of 20 years at 2%.
A real breath of fresh air that should encourage borrowing. Rates have fallen by 0.3 points in 12 months (1.43% in January 2019 versus 1.12% in December 2019). A context that is also leading many individuals to renegotiate their mortgages.

Lower cost of borrowing

This fall in interest rates, which affects the monthly payment and the term of the loan, has a positive impact on the cost of borrowing. An essential parameter - often overlooked - which comes down to the total cost of credit. Here again, it's clear that low interest rates have a positive impact on borrowers' finances.
If we take the example of a €150,000 20-year loan taken out at 1%, the cost of borrowing now stands at €26,362. If the borrower had taken out his loan 18 months earlier at 2%, his loan would cost him €42,918, a difference of €16,556. This further demonstration shows just how much purchasing power current borrowing conditions give you!

Successful credit repurchase

For borrowers who have already completed their property purchase, the question of renegotiating their loan is a logical one. It's a good idea to check whether the following three conditions have been met:

• there is an interest rate differential of at least 1% compared to the original contract, as this renegotiation will be subject to charges;

• you are in the first third of the loan repayment period, with most of the interest applied to the first monthly instalments;

• owe a capital of at least €70,000, then the gains from renegotiation will be truly significant.

No wonder, as Jérôme Robin points out, that loan renegotiations accounted for 20% of all cases in 2019.

A brighter financial climate?

What does 2020 hold in store for credit conditions? According to Meilleurtaux, we'll be keeping a close eye on the key interest rates that serve as a benchmark for home loans to individuals. Having risen slightly in December, they could be accompanied by a halt to the fall in rates we've been experiencing for over 12 months. In any case, it seems reasonable to anticipate a new year of lower interest rates.

A favorable situation for borrowers, who will have to come to terms with the recommendations of the French High Council for Financial Stability. The Council advocates moderation, believing that too many home loans are granted for long periods - in excess of 25 years - and demand a borrowing rate above the 33% rule. These practices increase household indebtedness and reduce bank margins...

Christophe RAFFAILLAC