The Impact of Rising Mortgage Rates on the Real Estate Market: Challenges and Consequences

2023-06-16 13:03:46

On June 16, 2023, by Paolo Garoscio

Faced with the constant rise in mortgage rates, professionals in the sector and future borrowers are faced with a major challenge. This trend, which could see rates exceed 5% in 2024, could considerably slow down the real estate market.

An inevitable rise in mortgage rates

Escalating mortgage rates: a threat to the real estate market

The average rate for 20-year mortgages reached 3.65%, according to the broker Empruntis. This increase is mainly due to the increase in the usury rate and the key rates of the European Central Bank (ECB). Indeed, the ECB increased its key rates to a level not seen in more than 20 years on June 15, 2023. Consequently, the 4% mark has already been crossed by some banks for loans over 20 and 25 years, depending on the profiles of the borrowers.

The monthly payment, adopted by the Banque de France in February 2023 and extended until the end of the year, has enabled banks to continue to increase the rates charged without risking having files blocked for several weeks. This situation, which occurred in 2022 when the wear rate was reviewed quarterly, should not recur before 2024.

The consequences of rising interest rates on the real estate market

The rise in mortgage rates poses a major problem for the real estate sector. Rates of 4% are considered too high by future borrowers, who could abandon their real estate project if property prices do not fall. This situation could allow them to recover some purchasing power.

With the uptrend in the credit sector not faltering, the year 2023 is expected to see further increases. According to Ludovic Huzieux, co-founder of Artemis Courtage, the 5% mark could be crossed at the start of 2024. This situation risks further blocking a market that is already slowing down. Indeed, the higher the rates, the higher the monthly payments. The High Council for Financial Stability (HCSF) has maintained the rules for household debt, limiting mortgage loans to 35% of borrowers’ disposable income.