How low can we go? Interest rates overview by Romeo Belli from French Private Finance

Interest Rates

Interest Rates Overview

Since the financial crisis of 2008, Central banks in the US and EU have maintained extremely low interest rates in an attempt to stimulate growth. Central banks fear that this is not sustainable and have been waiting to raise interest rates ever since. Overall, the banking sector remains weak with 30% of too-big-to-fail banks at risk of not meeting the stress test of the Financial Stability Board. This is evidenced by the low share prices of many banks and the existence of more debt in the balance sheets than 10 years ago.

However, last year, the US market showed some strength with strong economic figures such as unemployment. This enabled the FED to raise interest rates on two occasions. In both instances, global indices fell sharply leading investors to question whether we may have reached yet another top in the economic cycle.

We do not seem to be quite there in Europe where GDP growth rates are half of our American counterparts. The uncertainty around Brexit certainly has had its impact on the economic outlook of the EU. Furthermore, Mario Draghi probably won’t end his term on an unpopular note. Hence, we are unlikely to see an increase in rates in the near future. In fact, our main mortgage partners recently lowered their rates by a few basis points.

So, how low can we go?

Well, buying a property is definitely a long term play for most. Our recommendation is generally to fix the rate while you can. In an interconnected world where things move at lightning speed, it is difficult to forecast where we will be 2 years from now. Your parents may have experienced 15% + interest rates while they bought their first home and there is no guarantee we won’t get there again in the next 20 years which is the standard duration for a French mortgage fixed rate.