Current lending conditions have a leverage effect on household borrowing capacity which has nearly doubled in 10 years.
Real estate credit has become cheap
This is a statement that should delight the households who have plans to access the property. Their borrowing capacity has never been as high as it is now. And that’s an understatement since the indicator has grown by almost 40% in the space of 10 years, according to a brokerage professional. A notable gain that allows borrowers better access to real estate credit and reduces its overall cost.
It must be said that the period is particularly favorable for the purchase of a habitat. For several years now, interest rates, which are similar to the remuneration received by the lender, continue to fall until they reach a historic low a few months ago. In February 2019, the housing observatory is still advancing an average interest rate of 1.44% for all periods combined.
A situation attributed to the effects of monetary policy propelled by the Sentro Bank (SB) which has the will to encourage households to consume. For this, it manipulates its indicators to make loans more accommodating for borrowers. The ultimate goal is to support European economies to generate sufficiently high levels of growth.
Banks lend more readily over 25 years or beyond
With cheaper loans, households, therefore, borrow cheaply. This drastically increases their borrowing capacity because what they do not repay in interest becomes a supplement that they can inject into the purchase price. The lowering of rates, therefore, helps to increase the ambitions of future owners who have the opportunity to revise upward their requirements for habitat-related criteria such as the number of square meters. And this decline in the price of credit is an advantage that can also be coupled with the real estate market. If certain regions or large cities are experiencing a very strong price evolution, like Paris where some districts require an investment of more than 10 000 euros per square meter, other places are nevertheless more conciliatory.
Finally, it should not be forgotten that banks offer more flexible methods to agree to finance household real estate projects. Loans repaid over 25 years and more are becoming a standard, opening the door to low-income homeownership. In this case, the average duration of loans granted increased significantly to 230 months in February 2019, reflecting this trend. The institutions have also taken this strategic shift to finance more mortgage applications to offset the decline in their margin with low rates.