It also says that loans are tied closely to country specific developments in housing markets and predicts a slight further tightening of 4%, in net terms, of credit standards for all categories of loans in the first quarter of 2011.
In the last quarter of 2010, euro area banks reported that demand for mortgage loans continued to increase 23% of all the banks reporting an increase in demand in the last quarter of 2010 compares with 10% in the previous quarter.
‘The increase in the tightening of credit standards on housing loans appears to be explained mainly by increased risk perceptions linked to both the housing market and developments in general economic activity. Slightly higher costs of funding and balance sheet constraints also played a role and competition among banks, which usually has a dampening effect on the tightening of credit standards, tended to have a lesser impact than in previous survey rounds,’ the report says.
French mortgage brokers Athena Mortgages, said it has seen direct evidence of the tendency of banks to be increasing their rates across a number of riskier loan types in France. ‘Margins on loans have been increased by several banks for interest only loans and loans with long durations. The trend started after large increases in percentage terms of roughly 30% to the three month Euribor rate, against which variable rates are pegged, and Tec 10, which is used to price fixed rates,’ said director John Busby.
‘However, not all banks have taken the opportunity to increase their margins and the average increase in margin has been no more than 0.1 to 0.2% adding just €15 to €25 per month to an average loan of €250,000 over 20 years. As the report also suggests there have been no alterations to the levels of loan to value on offer and 100% mortgages are still available in France with up to a 30 duration at 3.8% capped at 4.8%,’ he explained.
Interest and demand is certainly there in both the resident and non-resident markets. We are seeing large increases in traffic to our website and enquiries over the telephone, as well as higher average loan amounts,’ he continued.
‘It is interesting that the market is increasing the prices for long term interest rates, indicating a belief in growth and inflation in the medium term. The demand for loans for purchases in France is certainly there and it will be interesting to see what effect if any these increases have,’ added Busby.
Despite the recent increases in rates, the National Federation of French Estate Agents (FNAIM) predicts growth in 2011 of between 3% to 6%, the higher figure based on interest rates not rising more than 1.5%. If interest rates did rise further than that prices would increases on the lower side.
