French mortgage rates 2010-2011: What next?

French mortgage rates have been relatively stable now for over a year. The only changes in the overall rates coming from changes in bank margins or if banks change their initial rate, also known as a teaser rate. So with all the turmoil in France over the huge deficit in Greece, what is the outlook for rates for mortgages in France?

French mortgage rates are based on the rate set by the European central bank which currently stands at 1%. As the EU only has one interest rate for all 16 member states, it cannot adjust the rate to help those countries that are worse off. So when considering which way the rates for mortgages in France will go, we have to look at what is happening across the EU.

The main factor affecting the ECB rate from which we get the current French mortgage rates, is the situation in Greece and the wider social problems of unemployment and rising household debt. Although the markets responded well initially to the One Trillion Euro bailout plan agreed by EU finance ministers, it was French president Nicholas Sarkozy apparently threatened to take France our of the Euro if the deal was not agreed, there is still some doubt over Greece’s ability to push through the austerity measures necessary to reduce their growing deficit and to reduce the interest rate payable on their Government bonds. The fact that some of the guarantee is coming from Portugal, Italy and Spain, who may also have problems reducing their own deficits, means there is some cause for concern, as their economies are not out of the woods yet. All this brings the Euro to an 18 month low against the Dollar today as concern spreads about the prospects for economic recovery. With the inflation rate predicted to stay low throughout 2010 and 2011, kept in check by a rising French unemployment rates, a pattern replicated the rest of Europe, the prospects for any large increases in the ECB main refinancing rate, and thus the interest rates for French mortgages, seem small for the next 18 months at least.

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