Interest rates on mortgage loans have been extremely low for years. At the end of 2019, the historic lowest records were linked, the 20-year fixed rate falling below the symbolic threshold of 1%. After a break following the confinement linked to the coronavirus crisis, or even a slight rise in rates, here they are, since mid-May, have started to fall again. At the end of June, Argenta offered a negotiated fixed rate of 0.89% for a 20-year loan, then New record CBC granted 0.85% negotiated fixed rate for the same type of credit. But do these reductions really benefit all customers? How to explain them when we are in a context of crisis? Response elements.
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Why are rates falling further?
This can be explained in two ways, says ING economist Philippe Ledent: both by macroeconomic elements and elements specific to the mortgage credit market. He details: “On the macroeconomic level, we saw a slight upward tremor in April-May, which corresponds to the period when the risk premiums on sovereign sovereign bonds had increased a little. We had indeed seen that the “Belgian 10-year OLO had risen, especially under the pressure of risk premiums. And then, during this period, the ECB was more and more aggressive: it announced its famous plan to 750 billion purchases of assets, which it increased by $ 600 billion a little later. So we saw that all the risk premiums of the euro zone States have been reduced, just like the Belgian OLO at 10 years old. We have therefore had the same movement on long-term borrowing rates. “
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Beside that, there is probably an effect of the mortgage market, which is subject to increased competition, points out the economist. “The customer wins because, ultimately, the interest rate reflects the heightened competition between banks.”
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“The customer wins because, ultimately, the interest rate reflects the heightened competition between banks.”
Philippe Ledent
economist at ING
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BNP Paribas Fortis (BNPPF), leader in the Belgian mortgage market, explains this drop in rates also by the monetary policy conducted by the ECB. “It keeps rates extremely low, which allows banking establishments to benefit from still exceptional refinancing conditions with bond rates again negative, “said Valéry Halloy, his spokesperson.
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Which customers benefit from these rate cuts?
The interest rates offered to bank customers do not depend solely on long-term interest rates, in this case the Belgian 10-year OLO with us, and on the competitive market between the banks themselves. “It also depends to a large extent of the client’s individual case. The customer’s choice as to the chosen formula (variable or fixed rate) and the duration of the credit will already determine his rate. The rate also depends on the borrower’s risk profile, his repayment capacity, his history with the bank, his equity, his real estate project, etc. For the bank, it is important to find a balance between the different factors, “explains Valéry Halloy.
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“The banks offer very good conditions for risk-free profiles, with very low rates, and therefore have very little margin on these files.”
Patrick Segers
mortgage broker at Segers & Associés
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You will understand, these exceptionally low rates mainly benefit best records, for which banks are increasingly competing to capture and keep these good customers at home. “The banks offer very good conditions for risk-free profiles, with very low rates, and therefore have very little margin on these files”, confirms the mortgage broker at Segers & Associates, Patrick Segers, who adds: “This are mostly customers who buy a clean home, not especially investors, who get these very good rates. “
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Which clients are denied access to mortgage credit?
But not everyone who buys their own property is housed in the same boat. Indeed, first-time buyers, who don’t always have a lot of equity, have seen access to credit tighten since the start of the year.
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Banks are now refusing them a larger number of mortgage loans, following measures taken by the National Bank of Belgium (BNB) on 1is January 2020 in order to limit the banks’ exposure to defaults. The consulting office Immotheker Finotheker has also estimated in a study the impact of these measures on first-time buyers: 10% to 15% of them no longer have access to mortgage credit since the beginning of the ‘year.
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They can no longer, since 1is January, borrow more than 90% of the purchase amount and must have 10% of the value of the property, as well as the amount of additional costs (registration fees / VAT, notary fees, mortgage, etc.). That said, the BNB nevertheless leaves a margin to the banks concerning first-time buyers: 35% of the credits granted to them may exceed the quota of 90%. 5% of these credits may even exceed the quota of 100%.
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But these young households who borrow for the first time do not have not often sufficient financial resources to finance the missing 10% and related costs themselves.
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“Each bank determines its own policy, but, in practice, banks and insurers reserve this 35% for higher income. They rarely, if ever, allow quotas (the ratio between the amount borrowed and the value of the property ) greater than 100% “, analyzes the consultancy firm.
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“The files which do not have any capital at all for the notary fees are today mostly refused.”
Patrick Segers
mortgage broker at Segers & Associés
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Mortgage loans are more expensive because the banks have increased their profit margins, says Immotheker Finotheker. First-time buyers who take out a loan with a quota greater than 90% must also often pay an increase in interest to the banks, compared to buyers who can borrow with a quota of 80% or less. Patrick Segers says nothing else: “Banks will seek their margin on the worst profiles since they take more risks, thus compensating for the very little margin they make on good files. The files not having at all an injection of own funds for the notary fees are today mostly refused. “
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Reinforced acceptance criteria?
The banks have not, on paper, changed their granting criteria. “The criteria are identical to before the coronavirus crisis, but indirectly, the banks are more demanding when making the decision whether or not the credit is granted, if you have a profile a little too risky,” says Patrick Segers.
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“Some clients whose income is affected by the crisis will more than likely postpone their real estate project and wait for a return to a more normal financial situation.”
Valéry Halloy
BNP Paribas Fortis spokesperson
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“The health crisis has not changed our criteria for granting, our behavior or our calculation method. But some clients whose income is affected by the crisis will more than likely postpone their real estate project and wait for a return to a financial situation more normal, “added the BNPPF spokesperson. At Belfius, it is explained that indeed, “since the Covid-19 crisis, particular attention has been paid to income stability and at the level of reserves that would allow the borrower (borrowers) to compensate for a temporary loss of income. “
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Is it always time to refinance your loan?
The rates remaining very low, we would tend to say: take the opportunity to refinance your loan. But in reality, the operation will only be advantageous if it meets a whole series of criteria. Indeed, you have to take into account the costs related to refinancing, in other words the administrative fees and notary fees which can be high if you change banks (release fees). For example, for a refinancing of 200,000 euros, the release costs amount to 1,000 euros and those for mortgage registration to 5,000 euros. If the refinanced amount exceeds 300,000 euros, the registration fees are almost doubled, or 10,000 euros. The administrative fees vary from one bank to another, but allow around 250-300 euros on average. If refinancing shortens the term of the credit, your bank may ask you for a re-employment allowance, amounting to 3 months of interest.
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Refinancing is therefore only justified if all these costs are lower than the benefit provided by the drop in the rate which will be offered to you by the bank. For this, it is often said that there must be a difference of at least 1% between the old and the new rate, and that the term of the loan is still at least 10 years.
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Credit insurance
The Immotheker Finotheker consultancy office recommends the introduction of credit insurance for young families whose equity is lower, in compensation for this lower personal contribution. In the event of default by the borrower, reimbursement would then be paid for by an insurance company.
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This credit insurance, which already exists for businesses, is a special form of insurance that guarantees businesses or banks against default by their customers. It is an insurance that protects a business against the risk of non-payment due to default and / or bankruptcy. If the customer does not pay, the creditor / creditor is still paid.
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