Real estate loan: how banks set your rates and why

After quadrupling in two years, mortgage rates have continued to fall for 14 months. But this decline could soon stop. Developments dictated by a host of indicators scrutinized by the banks.

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Good news for the contendersaccession to propertyTHE real estate loan rate are expected to decline further over the next six months. A decline that began a year ago, beneficial for property buyers desolved by the quadrupling of rates between the start of 2022 and the end of 2023. So what are the indicators that dictate these developments? What elements do banks use to provide their mortgage rate scales to brokers each month?

As a general rule, mortgage rates are determined based on the key rate of the European Central Bank (BCE), explains Crédit agricole on its website. Banks in fact borrow part of their resources from the ECB, at a given rate. In order not to lose money, they lend to individuals at a rate at least as high as that at which they obtain financing from the ECB. The latter having raised its rates up to 4% in 2022 and 2023, in order to curb galloping inflation, mortgage rates have logically taken the same path, to exceed 4% in the fall of 2023. In the same way , if they have started to fall again over the past year, it is because the ECB has reduced its key rates four times in 2024, inflation having slowed significantly.

Home loan rates based on a multitude of other rates

Rates iinterbanksuch as theEuribor and Eonia, to which banks lend money to each other, also influence their real estate loan rates, indicates Artémis Courtage. Just like the rate ofOAT (equivalent Treasury bond) at 10 years, required by international investors on the financial markets to lend to France, adds Cafpi. It is precisely because this latter rate has increased significantly in recent weeks, to exceed 3%, that some brokers anticipate a slowdown in rate decline real estate credit.

Banks also take into account their operating costs (premises, payroll) to determine their real estate loan rates. Without forgetting the cost of risk, which depends on the profile of each borrower. Person’s contributionl equal to or greater than 10% of the amount borrowed, stable income and professional situation… The more you inspire confidence in the bank, the more inclined it will be to lower the credit rate.

A question of commercial strategy, too

There loan duration also affects the mortgage rate. In general, rates are lower for short-term loans than for long-term loans, the repayment of which is inherently more uncertain. The average rates in January were 3.10% for 15-year loans, 3.30% for 20-year loans and 3.50% for 25-year loans, according to the broker Vousfinancer. Who managed to negotiate rates of 3% over 15 years, 3.10% over 20 years and 3.2% over 25 years for his best files.

Finally, the commercial margin of the bank, a source of profits, is taken into account in setting its real estate loan rates. Added to this is the regional or national character of the credit institution. Regional banks often have more latitude than national banks to grant advantageous rates and thus gain market share.