Have you ever heard of the negative rate? While the French benefit from particularly low interest rates over the months, the negative rate is not science fiction but indeed real for some borrowers. What is it and is it applied in real estate? To find out more, follow the guide!
Negative rate: definition
And to start, let’s recap with a short course in economics and finance: you know, when you borrow, for real estate or other, you have to repay not only the amount borrowed but also the interest rates. Thus, the lower the rate, the more it reduces the general expense.
From the point of view of French economic policy, it is exactly the same thing when it comes to public debt. This public deficit in fact represents the difference between the inflows of money into the state coffers (mainly from tax revenue) and the need for state funding for the expenses necessary for the smooth running of the country. As the public debt increases a little more each year, the Ministry of Finance therefore seeks the lowest possible rates.
Since July 2012, France has borrowed several billion dollars at negative rates, thus joining the very closed circle of countries having access to this privilege. Like Germany, the Netherlands, Denmark and Switzerland, France is considered by the various financial players to be a reliable country which will be able to repay its loan. Investors are therefore ready to “pay” to lend money.
Is the negative rate model applicable for home loans?
Yes it even exists in some countries like Denmark, Switzerland or Germany. Moreover, this incredible situation is only possible by taking out a variable rate loan, which implies for the borrower the risk of seeing his interests double the following year.
For the record, French borrowers and more particularly cross-border commuters who have taken out a variable rate mortgage in Swiss francs are now claiming interest rates indexed to the same figures as Switzerland, which would allow them to benefit from a rate close to 0% and even negative. But for the moment, their request remains unanswered on the side of Swiss banking establishments.
Is the negative rate possible in France?
While French borrowing rates are historically low, all the experts are unanimous, such a situation is hardly imaginable in our country.
The first reason is explained by the nature of the credits which are mainly at fixed rate and which will therefore never pass to a zero rate and even less to a negative rate.
Finally, let those who have taken out a variable rate loan do not rejoice too quickly … Because despite the fall in interest rates of the Euro currency, the banks still apply a variable margin of between 1 and 1.5%, this which makes it impossible to slide into a negative rate.
And you, did you know about the existence of negative rates? What types of loans do you prefer, fixed rate or variable rate? Tell us about your experience, the blog is there for that!