The recent announcement of an immediate ECB rate decrease poses questions, for us, and readers of the 56Paris blog.


Will this cut translate to better mortgage deals for those buying in Paris? Or is it too modest?


We take a look at the complexities at play – and the latest predictions for the French mortgage market in the near future.



A surprise move from the European Central Bank?


The European Central Bank (ECB) recently lowered its benchmark rates by a quarter of a point.


It was a surprise move for some – even though this 0.25% drop is relatively minimal.


However, these are the first rate cuts since September 2019. So it’s a significant move by the ECB, and something we briefly mentioned in our latest update on the Paris Chamber of Notaries’ sales price data.


But will this make any impact on mortgages, freeing up more people to buy? And in turn, could this impact Parisian property prices?



A drop in the ocean


The modest drop of 0.25% isn’t really enough to make major changes to mortgage rates.


Inflation remains strong in Europe – and has even started to rise slightly – up to 2.6% in May 2024, compared to 2.4% in April.


But still, the ECB rate drop is a positive step to opening up more affordable mortgages for prospective buyers. Although, many experts are saying its impact may be minimal, particularly in the short term.


It’s a small change, and it comes after a period of significant rate increases throughout 2023.


That said, according to some brokers, French credit rates have actually been decreasing since the end of last year. But this trend may not continue.


We discussed some of these topics in our interview with a mortgage broker earlier this year.


A second cut to the rates may come a little later in 2024, which could have a bigger impact.



Another layer – elections


In early June, French President Emmanuel Macron announced he was dissolving the French Parliament – with two ‘snap’ elections due soon.


The current parliament was set to remain until 2027 – so it’s another surprise for many.


These new parliamentary elections are set for June 30 and July 7, 2024. And they’re adding another layer of uncertainty to the current landscape.


Banks may show more caution during times like this – potentially leading them to hold off on further reducing mortgage rates.


But some reports suggest the banks are still very much looking to attract new customers – so may still offer more competitive rates in the coming months.


This does mean some potential buyers may be holding off, with a more ‘wait-and-see’ approach.


It’s a cliché of course – but time will tell.



The OAT factor – French government bonds


There is another factor at play – the ECB’s key rate isn’t the only thing that influences French mortgage rates.


The rates of Obligations Assimilées au Trésor (French government bonds), also play a significant role.


These OATs are issued by Agence France Trésor (AFT), the department of the Ministry of Finance responsible for managing the State’s debt and cash flow over the long term.


The 10-year OAT rate, a fixed rate at which the State borrows over 10 years, is one of the benchmark indices for developments in the real estate loan market.


If the French government needs to borrow more money, OAT the rate may rise. And when this happens, it can influence decisions made in the French financial market – including higher mortgage rates for buyers.


With uncertainty in this area, until the government elections have taken place, it’s another reason prospective buyers may be playing the waiting game.



Final predictions following the ECB rate decrease


The long-term impact of the new ECB rate decrease, specifically on French mortgage rates, is still uncertain.


What happens next is likely to be a complex interplay of various factors – the elections, the performance of the overall economy across Europe as a whole, and the ECB’s future decisions on monetary policy.


We will continue to update all our readers with the latest reports.



Here to help you buy in Paris


At 56Paris, we always stress that the topics discussed in this article are predictions. Also, your personal mortgage rate will depend on the specifics such as loan amount, creditworthiness, and the lender.


We can put you in touch with a local broker to offer you tailored mortgage advice.


Or if you’d like to speak to our team of property experts about buying an apartment in Paris, contact us today.


You can also follow us on social media via FacebookXInstagram, and Pinterest for further news and updates.