Volume of French mortgages to drop in 2012

The amount of mortgages granted by banks was in strong decline in the first semester, with a decrease of 33.1% compared to the first half of 2011. This partly explains the current lethargy of the French property market.

According to Michel Mouillart, professor of economics at the University of Paris Est,  there are three reasons for this collapse: demand has fallen, state aid has disappeared and the availability of credit has been reduced as banks experienced  refinancing problems due to the introduction of Basel III, the international banking regulation and recommendation agreement. June marks a slight improvement, with total loans down by 21.4% compared to June 2011. But the difference is huge with June last year, which recorded a jump of 24.7% of loans compared to June 2010, as investors fell over themselves to purchase property under the favourable government tax incentive of the Loi Scellier which ended in December 2011.

The existing property market is suffering more than the new built which recorded respectively -41.3% and -21% over the first semester in the Ile-de-France (Greater Paris). The volume of sales in the existing market will have to drop by 25% to 550 000 units to reach levels last seen in 2009.

French mortgage rates remain at their lowest level with 3.59% on average in June, close to the situation of 1945. In 2012, total mortgage production should reach between 110 and 120 billion euros, a decrease of nearly 25 to 30% compared to 2011 (160 billion), a long way from the absolute record of 2007 (170.2 billion), Michel Mouillart said. This change occurs after an explosion of these mortgages since the beginning of the century, which contributed to the well 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. This reduction has led the French Building Federation (FFB) to predict a loss of 350,000 jobs in 2012. The construction industry, which represents 7% of the GDP and achieved a turnover of €123 billion in 2011, employs 1.1 million workers in 350,000 enterprises.

Read the original article in French here