Mortgage loan rates are up slightly at the end of 2019. Will this trend continue in 2020?
Real estate brokers are observing certain signs of an evolution in the behavior of banks at the end of 2019. Indeed, several banking establishments have tightened their conditions for granting credit. What will be the trend in mortgage rates for 2020? Response elements.
Probable tightening of loan rates
At the end of the year, loan rates remained broadly stable, at 1.05% on average over 15 years, 1.25% over 20 years and 1.45% over 25 years. According to broker Vousfinancer, the slight rate hikes observed at the beginning of November ranging from 0.05% to 0.15% only concern certain profiles, in particular low-income borrowers, and long loan durations. Conversely, other banks that have not yet exceeded their credit production targets continue to grant record rates to the profiles they wish to capture.
Thus, after a particularly dynamic year in 2019, despite the lengthening of processing times and the tightening of credit granting conditions, several brokers including Vousfinancer believe that mortgage rates will remain attractive in 2020.
Banks that don’t lend as easily
While they have been significantly relaxed throughout the year, the criteria for granting credit seem to be tightening. In fact, 95% of brokers made this observation in 2019 (64% in 2018) for all borrower profiles (75% of brokers) or only certain profiles (19%).
According to market professionals, most banks are more stringent on personal contribution, available savings after operation and income. Several banks are now refusing to finance certain riskier or less profitable profiles and in particular 110% financing which includes the amount of the property and all of the costs linked to the credit.
An increase in application fees
Most French banks and regional establishments have unveiled their tariff grids for 2020. While interest rates should remain low, this is not the case for administration fees. Cream Bank and Best Bank have already increased their prices.
Application fees can be particularly high for the borrower. Included in the annual effective annual rate (APR) which must appear on any loan offer, they directly impact the total cost of the credit. These costs are calculated from the amount borrowed and generally represent 1% of the capital. In concrete terms, this percentage will not be revised in 2020, unlike the amounts of the floors and ceilings applied to the application fees. In other words, as of next year, several banking establishments will impose minimum and maximum handling fees on their customers.
The higher the floor amount, the more the low income borrowers are penalized. Cream Bank thus raised this amount from 400 to 500 dollars to free up more margin on the mortgage loans it offers. For its part, Best Bank will increase its ceiling amount by 20% in 2020, increasing it from 1,000 to 1,200 dollars. As for regional establishments, a third of them anticipate an increase in application fees for next year, knowing that not all of them have yet published their price list.
To save money, borrowers can try to negotiate their fees by highlighting their strengths (income, personal contribution, professional situation, etc.).
Banks Seek Separation From Brokers
In return for a competitive credit rate, borrowers often pay a high price for loan insurance. Indeed, at the time of subscription, the banks systematically offer their group contract based on the pooling of risks. However, customers are under no obligation to subscribe to it. They can bring competition into play, notably by calling on a real estate broker. Banks thus see their margins decrease in favor of insurers.
A conflict now seems declared between banks and brokers. Some financial institutions have already stopped their partnerships with brokerage networks in order to improve their margins. While some believe that banks have less skills than them to manage mortgage loan application files, others believe that banking players will maintain their partnerships with the most efficient brokers based on the volume of business, the size and quality of the files processed. In this hypothesis, brokerage networks of significant size and structured will be favored.