ECB’s low rates will boost French mort­gage mar­ket

Financial Mirror (Cyprus) - - FRONT PAGE -

The Euro­pean Cen­tral Bank’s (ECB) in­ter­est rate cuts have forced down the cost of mort­gage loans in France, sup­port­ing bor­rower rene­go­ti­a­tions and pre­pay­ments, said Moody’s In­vestors Ser­vice. In 2015, new mort­gage orig­i­na­tion amounted to EUR 202 bil­lion. Of new loan orig­i­na­tion, 36% re­lated to re­mort­gag­ing.

“Bor­row­ers are tak­ing ad­van­tage of low mort­gage rates, which has led to a high level of loan rene­go­ti­a­tions. Rates are likely to stay low be­yond Q1 2016, which will sup­port new mort­gage lend­ing and house price,” said Ca­role Bernard, a Se­nior An­a­lyst at Moody’s.

“The French hous­ing mar­ket ex­pe­ri­enced a good 2015, as sales were up 15.7% year-on-year. French banks have big am­bi­tions to ex­pand their share of the do­mes­tic mort­gage mar­ket in 2016, tar­get­ing clients look­ing to re­mort­gage their homes and first-time buy­ers,” added Greg Davies an As­sis­tant Vice President at Moody’s.

The rat­ing agency said fixed-rate mort­gages have ben­e­fited from the ECB’s loose mon­e­tary pol­icy, with an av­er­age mort­gage rate of 1.9% in March (2.12% for new houses and 1.93% for sec­ond-hand homes). By Q1 2016, the pro­por­tion of fixed-rate loans com­pletely dom­i­nated the mar­ket, with float­ing-rate loans mak­ing up 0.4%. Low rates are fu­elling de­mand for re­mort­gag­ing and in­creas­ing the pre­pay­ment rate across French res­i­den­tial mort­gage-backed se­cu­ri­ties (RMBS). Re­mort­gag­ing ac­counted for 36% of banks’ new mort­gage lend­ing to house­holds at the be­gin­ning of 2016.

Higher pre­pay­ment rates have built-up credit en­hance­ment in French RMBS, pro­vid­ing fi­nan­cial sup­port to cover losses in ad­verse con­di­tions, which prompted up­grades last year. How­ever, for in­vestors in French RMBS, pre­pay­ments will re­duce the weighte­dav­er­age life of RMBS trans­ac­tions, as tranches pay down faster, re­sult­ing in rein­vest­ment risk.

Newspapers in English

Newspapers from Cyprus

© PressReader. All rights reserved.