Home loan: will rates rise with RN threat?

Dissolution of the National Assembly

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Emmanuel Macron believes the possible rise to power of the National Assembly would cause a “surge” in property loan rates. A scenario that the markets don’t seem to fear.

Capital Video: Real Estate Loans: Will Rates Rise With RN Threat?

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Emmanuel Macron made this threat several times during his press conference held on June 12: “If the National Assembly came to power, what would happen to your real estate loans? They will skyrocket because prices will skyrocket.” It is clear that this fear is not shared by the markets. With a lead in the polls over the left-wing coalition in the June 30 and July 7 parliamentary elections, the RN has not (yet) caused a rise in France’s 10-year debt.

This investment, also called an assimilable Treasury Bond (OAT), rose 0.20 points between June 7th and June 11th, from 3.11% to 3.33%… and then gradually fell back to its level. This June 13, French 10-year debt is trading at 3.18%. “We can expect significant volatility and uncertainty leading up to the election, but ultimately the impact we think will be quite low.”, analyzes Crédit Mutuel’s asset management. As a reminder, the OAT level rose to 3.6% in October.

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The rate of French debt is standard

Despite its technical appearance and far from the daily lives of the French, the country’s debt service level is still much higher than it appears. It determines the rates charged by banks. “The cost of real estate loans correlates with the cost of OAT. To make money, banks buy French debt at interest. So they have no reason to offer loan rates lower than this reward., explains Patrick Artus, economist and advisor to the Natixis manager. In other words: an increase in the OAT yield would mechanically cause a similar movement in interest rates on real estate loans.

Especially since the banks are simultaneously benefiting from the monetary easing carried out by the European Central Bank. The ECB has just cut all its key rates by 0.25 basis points, including the refinancing rate. This allows banks simple access to liquidity to lend to households and businesses. “A slight increase in OAT changes almost nothing for usconfirms a prominent French banker. We, and indeed all banks, intend to continue to lend under the best conditions and acquire customers.”

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RN towards “reality principle”

But what would happen if the National Assembly took power after the upcoming parliamentary elections on July 7? According to Patrick Artus, this would not be the disaster predicted for borrowers: “When you run a European country, decision-making takes place within the European Union. Especially with budgetary, monetary and prudential rules. The National Assembly’s costly program could eventually turn, as in the case of Giorgia Meloni in Italy, into a tighter budget policy.

A caution shared by David Taieb, analysis within the Sienna IM, which also draws a parallel with the Italian example: “This scenario (since the OAT explosion to more than 4%, editor’s note) seems excessive to us at the moment, because if uncertainty remains, so does the principle of reality (…) We cannot do everything we have planned. All of these factors are likely to calm markets, keep France’s debt levels afloat and ultimately allow lending rates to continue to fall.

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