French mortgage interest rate rises point to returning growth

French mortgage interest rate

Just a few short months ago in September 2010, French interest rates hit historic lows not seen in over 50 years. Fast forward to today and the situation has altered with the trend now for higher rates. We have seen strong rises in the 3-month Euribor recently, which has added almost half a percent in the past six months or so. Variable rates now start from 2.80% for a 25-year variable mortgage at 80% loan-to-value. Fixed rates have also increased by almost twice that amount and could be set to rise further. Mortgages for 80% of the purchase price can be found for 4.25% fixed for the entire 25-year duration of the loan. Great value can be found for 100% mortgages with a 30-year mortgage, which starts at 3.80% and cannot increase past 4.80% for the life of the mortgage. While it is unclear whether the European Central Bank will raise rates, there is increasing confidence in the return of growth and inflation in the medium-term which is pushing up the price of long-term bonds and fixed interest rates.

The recent rises probably show a return to more sensible interest rates and, although the trend is upwards, it remains to be seen how the austerity measures across Europe will bite, hindering inflation and growth. The UK outlook is for low growth as our housing market is still unaffordable for many, compounded by a lack of lending from the UK banks. The recent contraction in the economic growth “due to snow” shows just how fragile the recovery is. In Europe, the increasing deficit problems and lack of investor confidence in Portugal, Greece, Ireland and Spain has been a worry for many. The ECB and China have been buying bonds from these countries and managing well to reduce the amount of money the ‘PIGS’ have to pay to borrow on the international market for their spending plans. For the time being, mortgages are still available at 90% and 100% in France, a boon to many British buyers looking to take advantage of rising French property prices.