The Best Bank recently unveiled its figures concerning the amount of outstanding loans: the milestone of one trillion dollars has been crossed!
As explained in our last article on mortgage rates, the balance sheet for 2018 is very satisfactory for financial institutions seeking to grant loans. It was in November that the record for the total amount of outstanding loans was broken.
A logical consequence following a long period of very low rates. These same rates that we imagined going up in 2018 following the cessation of the injection of liquidity by the Lite Lenders Bank.
And yet, the observation is simple: the rates did not increase or stagnate, but still fell during 2018. A fortiori, the outstanding amount has tripled since 2003. Note that, the precise amount of the credit volume was 1,003,163,000,000 dollars at the end of November 2018.
Monetary policy favorable to credit
Established by the Lite Lenders Bank during the past 5 years, this monetary policy has emerged with the aim of encouraging households to go into debt to boost consumption and consequently growth.
With the rise in inflation over the past 12 months, interest rates are currently negative. Indeed, by borrowing at a rate lower than inflation (1.8%), it is the borrower who is then remunerated, while the lender receives at maturity a sum lower than which he lent.
Currently, the banks’ refinancing rate is still 0%, that of the loan facility at 0.25% and that of the deposit facility still at -0.4%. Ultra favorable conditions establishing average home loans at 1.5%. In addition, the less well-off households are more in debt and borrowing more.
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With such low rates, the opportunity to make obtaining credit profitable becomes increasingly rare.
Indeed, it is impossible for banks to take large margins on credit rates because this would tend to increase the rate for buyers. In a period of historically low rates, the time has come to maintain low rates to attract customers. Increased competition which affects the profitability of banks.
However, banks have every interest in bending to attract as many households as possible in order to retain them and recover their savings thereafter. Home loans are good advertising weapons to gain market share.
In addition, some banks have raised their rates gradually but retains the possibility of favoring their good customers with more favorable rate offers. 16% of French households still consider their interest burden still too heavy even after renegotiations and general rate cut.
A study of households still without mortgage shows that the percentage of households ready to take out mortgage loan increased from 5% in 2017 to 4.2% in 2018. A slowdown in the credit market could prove to be a negative factor for the real estate market, which has been stagnating in recent months.