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Real estate loans: New historic drop for the "20-year fixed rate"!

This is certainly an exceptional case, but a well-known Belgian bank recently awarded a loan rate of 0.70 % to one of its clients. For both buyers and sellers, the market is currently profitable for all players in the real estate sector. It is therefore an ideal time to make an advantageous transaction.

A revealing case of the current trend

While so-called "long" rates in the bond market continue to rise, mortgage rates are not (yet) benefiting from the same trend. For instance, a few weeks ago, a borrower received an exceptional rate of 0.70% for a 20-year fixed-rate loan. "It is indeed possible that an interest rate of 0.70 % was granted to one of our borrowers who presented an extremely reliable file," the banking institution concerned confirmed recently.

However, there is an opposite trend: that of the 10-year OLO yield (the rate paid on Belgian government bonds) turning positive again. This is the first time since June 2020. When the OLO rises, mortgage rates also rise.

Impactful competition

Experts note that it is the competition inherent in the mortgage market that operates in the current context. It leads to delays in the adjustment of mortgage rates to those observed in the bond market. Although banking institutions offer minimum interest rates, a customer taking out a mortgage loan under these conditions is likely to have opened a savings account with the same institution. He must also have domiciled his salary there and taken out fire insurance or a balance guarantee, for example.

Moreover, the same customer must offer solid guarantees regarding his initial contribution. As a reminder, banking institutions cannot theoretically grant loans for amounts exceeding 90% of the value of a property (80% in the case of a loan used for investments). The customer must also guarantee disposable income after deduction of expenses (loan repayment cannot exceed 33% of the borrower's income).

With a 20-year loan and an interest rate of 0.70%, the loan-to-value ratio is significantly lower than the thresholds imposed by the National Bank. Since the borrower's disposable income is higher, he or she can live a comfortable life with less financial pressure.

An ideal time to negotiate!

All applications are analysed individually. The setting of rates and credit decision are based on a very large number of factors. The borrower's ability to repay the loan, "loan-to-value"/"loan-to-transaction" and personal contribution are among the most important granting conditions.

It is therefore an advantageous period for those looking to negotiate a mortgage loan. Even if you fail to obtain the record interest rate mentioned above, the negotiating margin at this Belgian bank remains attractive, as its interest rate is 3.30% for a 20-year fixed-rate loan!