French mortgage borrowers still paying less than Germans

The drastic rise in interest rates from the European Central Bank since the start of the year has effectively ended the decade-long boom in German residential house prices. But it hasn't had the same effect in France, where house prices in most big cities have been steadily inching upwards. Why is this?

With both countries being members of the Eurozone, and both struggling with high inflation rates, the impact of higher interest rates ought to be similar. Eurozone inflation hit 9.9% in September, way above the ECB's target of 2%.

But whereas both German and French borrowers were paying about 1% for mortgage finance at the beginning of this year, French borrowers were still able to access loans for 1.9% in October, while their German counterparts were paying more than twice as much.

A key reason for this is the special regulation in France which fixes the highest level of interest rates permissible on mortgage lending to a maximum of a third above the average effective interest rate that was charged in the course of the previous quarter by banks for all property loans of the same type. In other words, the rise in mortgage interest rates are only gradually introduced, and not suddenly as in Germany, where mortgage rates are coupled to the yields on ten-year government bonds. These have spiked sharply as a result of the successive ECB interest rate rises, which have strong indicative value, and higher energy costs.

According to the AVIV Housing Market Report for Q3, which covers housing price developments in France, Belgium and Germany, offered prices for residential housing in Q3 in Germany's biggest cities nearly all pointed downwards, with few exceptions (Berlin, for example). In France, by contrast, prices continued to nudge upwards nationwide, with the exceptions of Paris (down 0.2%), Rennes (down 0.3%) and Nice (down 0.4%). The highest rises for the quarter were seen in the Mediterranean cities of Marseille (up 3.5%) and Montpellier (up 3.7%).

AVIV is a digital tech company, part of the Axel Springer Group and based in Berlin. Its brands include Immowelt (Germany), Groupe Se Loger (France) and Immoweb (Belgium). It also owns valuation and broker groups Meilleurs Agents in France, Housell in Spain and classifieds marketplace Yad2 in Israel, as well as holding a minority investment in Purplebricks (UK), Homeday (Germany) and Zumper (USA).