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Rising Inflation Likely To Affect French Property

News Posted On: 03 May 2011

It seems likely that property owners and buyers in France will face increased mortgage rates, as the European Central Bank acts to control inflation.

Last month the European Central Bank raised the interest rate from 1% to 1.25%, but as yet this has not been passed on to borrowers because it had already been factored in by the banks. However fixed rates have increased slightly and it's expected that further increases will occur as it becomes more expensive for banks to refinance their offered loan rates.

The target inflation rate is set at 2% by the European Central bank, but is currently running at 2.8%. This leads to some experts predicting further interest rate rises as early as next month. Analysts were already expecting an interest rate rise in July but feel the latest inflation figures make an earlier move more likely.

They also expect inflation to stay at its current level or even to reach 3% by the end of the summer. However there are suggestions that the strong growth in Germany and throughout much of Europe is peaking, and in Spain unemployment continues to rise as retail sales fall.

Historically, mortgage rates in France have been much lower than those in the UK, which mean that over the normal period of a mortgage, borrowers would be paying substantially less. However there is always the risk of having a mortgage in a different currency and there is no way of guaranteeing against currency fluctuations. The majority of mortgages in France are given on a fixed rate basis.

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