France: mortgage volume keeps on falling

The amount of mortgages granted by banks continued to register a strong decline in the third quarter with a drop of 24.3% compared to the same period in 2011, according to a study of the French Mortgage Watchdog (Observatoire Crédit Logement/CSA) published on Thursday. In August, the volume of transacted mortgage business declined sharply. Then, in September, when the market usually pick up again, the recovery was very soft,  Credit Logement said in its study. For the first 9 months of 2012, the fall is even more dramatic with a decrease of 30.5% compared to the same period in 2011.

The paradox of this situation lies in the fact that mortgage rates are very low and continue to decrease. In fact, interest rates have been falling since March and are not very far from their lowest level since 1945 (3.25% on average) reached in November 2010. Mortgage rates are currently an average of 3.38% this October against 3.43% in September and 3.97% in January.


For the whole of 2012, the total value of mortgages granted by banks should only reach a little over than €115 billion, a decline of almost 30% compared to 2011 (just under €162 billion ) and a long way from the absolute record in 2007 (€170.2 billion), said the author of the study, Michel Mouillart, professor of economics at the University of Paris-Ouest. We have never faced a drop of this magnitude and that quickly. During the depression of 2008-2009, it took two years to get there. This time, it took just one year, says Michel Mouillart.

This reversal occurs after a boom in the mortgage market from the beginning of the century which had contributed to the good performance of the property market in France: 70.8 billion in 2001, 87.3 in 2003, 143.7 in 2005 and 170,2 in 2007. On the other hand, this situation is an opportunity for would-be buyers with good financial circumstances. Thanks to the ultra-low French mortgage rates, which can be fixed for up to 25 years, and relatively high inflation, it is becoming increasingly attractive to invest in a property in France.