Two years on French mortgage indices at all-time lows again

In the face of continued uncertainty about growth in the Eurozone, the main indices on which the majority of French fixed and variable rates are based now hover within a few basis points of their historic lows.

 Euribor evolution

The last time the main fixed rate indicator index, called the TEC 10*, reached this level was in September 2010 when it reached 2.60%. In April of that year, the three month euribor, on which the vast majority of variable rate mortgages in France are based, stood at 0.64% with the best available rates being a 20 year fixed rate at 3.50% or a variable mortgage at a little 2.6%. In May this year, the Tec 10 now stands under its previous low at an historic 2.39% and the three month euribor is at 0.67% just a touch over its all-time low. The best buys are now a 20 year fixed rate at 4% and variable trackers from 2.8%.

 

So where next for French interest rates and your French property?

It is hard to see rates falling much further, though the European central bank base rate at 1% could be lowered further. The main driver of the indices will be how the ECB and Eurozone governments navigate the interplay between inflation pressures caused by global money printing and lower growth prospects generated by austerity measures and policies for growth. The other factor in the rates will be the bank margins as there is scope to reduce these, though capital pressures may mean that these are increased or maintained in the face of further falls in the main indices.

 

A good opportunity to purchase an inflation-proof asset.

Taking a step back from the details, it is clear that there will be inflation and higher rates coming in the medium term when the money printed by the governments makes its way into the markets. At that point, those who bought a French property now after negotiating a good deal, with a good 20 year fixed or capped rate mortgage at 4%, will be pleased they did as they watch the value of their property increasing, with a mortgage that, after inflation is taken away, is costing virtually nothing in real terms.