1.    Money markets rates
Since the end of 2010, interest rates in short-term financial markets (Euribor 3 months and Euribor 1 year) have been predominantly increasing after a strong decline during the previous 2 years period. This steady increase in the short term interest rates is mainly due to the European Central Bank’s (ECB) decision, in May 2009, to lower its key rate to 1% and to maintain it on this level until April 7th, 2011.
On that date, the ECB decided to raise its refinancing rate by 25 basis points to 1.25%. On July7th 2011, by adding a further 25 basis point to the base rate, 1.50% was reached. On November 3rd due to changes in the ECB’s policy, the base rate was lowered to 1.25%, and further down to 1%, on December 8th 2011.
The increase of the short-term rates is also linked to the return of inflation. For instance, in December 2011, prices were rising by 2.8% in the Euro area (Ref: Eurostat, European Union Statistic Office), which is above the 2% ECB’s inflation rate target.

2.    Money markets history

The OAT 10 years – Fungible Treasury bonds, is a long-term rate government bonds used by banks as a benchmark for fixed rates – After rising considerably in early 2011 to reach its climax of the year, 3.80% in mid April, has fallen sharply since the summer of 2011 to reach 2.45% on September 12, its lowest level since 1996.
It should be remembered that the short rates (Euribor 1 year and Euribor 3 months) serve as a basis for the calculation of variable-rates mortgages.

General speaking, the French Fungible Treasury bond rates trend is positive. After a downfall of 2.50% in summer 2010, it then skyrocketed between late 2010 and early 2011, reaching 3.80% for instance in mid-April 2011. On 6th January 2012 the 10-year OAT is at 3.40%.

3.    Short-term rates (for variable and capped rates)

If you are considering subscribing for a variable rate loan, note that changes in tracker-rate mirror variations in short term Inter Banks loans rates (Euribor)
•    Short term Interest rates in money markets (Euribor 3 months or 1 year) reflect the price at which banks lend money to one another over short periods.
•    These rates serve as the reference for variable rate loans. Banks add a margin of between 0,60 % and 1,50 %, to the short rate term (Euribor 3 Months, Euribor 1 year, sometimes OAT 5 years) ;
•    Then, variable rates vary by predefined periods (1 month, 3 months…), according to a « cap » possibly defined, with the movements of the reference rate.

4.    Long-term rates (for fixed rates)

If you are considering subscribing for a fixed rate loan, note that changes in long term rates allow fixed rates fluctuations forecast.
•    The long term Interest rate (OAT 10-years) reflects the long-term fixed rate to which the French state borrows over a long period (10 years). Banks borrow at a rate slightly higher;
•    This rate is the reference used by banks to set the interest rate applied for 15 years fixed rate mortgages. Rates applied for the other loan terms are calculated by adding or subtracting approximately 0.15% for every 5 year phase above or below a 15 years term.

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