2026 outlook for residential real estate and mortgage lending in France

Is the recovery in the real-estate market already a thing of the past?

The outlook for the real-estate market in 2026 seemed to be shaping up as a continuation of the recovery that began last year. In 2025, conditions favored a rebound in sales across most markets, accompanied by a slight uptick in prices too small to deter households from pursuing their real estate projects.

At the end of February, however, the shock caused by the war in the Middle East in what was already a fragile geopolitical context helped to trigger a further deterioration in the economic and financial environment, already weakened by considerable instability.

The existing-homes market has ground to a halt

In the existing-homes market, the increase in the number of monthly sales noted during the first two months of 2026 gave way to a decline in March (−8% compared with March 2025). Given the time required to complete real estate transactions (approximately three months between a preliminary agreement and the final deed of sale), the situation at the start of this year merely reflects, in fact, a slowdown in activity that predates the recent deterioration in the geopolitical situation.

Owing to several factors related to major uncertainties about the economy, widespread concern among the French about their public finances and the upward trend in interest rates, household confidence – and, subsequently, their purchasing power for real estate –  began to decline in late 2025, gradually dampening enthusiasm for the pursuit of plans to acquire real estate. The relative stability in prices for existing homes noted since late 2024 also illustrates a certain wait-and-see attitude that appears to be spreading and having an impact on both supply and demand.

The new-build market is still on the mend

After four years of decline, the new-build market finally seems to be coming out of the doldrums but remains at exceptionally low levels of new housing construction and sales. Starting from an historic trough⁽¹⁾ , a number of positive signs are starting to appear such as, at the end of April 2026, the increase in building permits (+16% year-on-year) and housing starts (+14%). These encouraging signs, however, do not signal an end to the crisis and remain insufficient to reassure a sector that has been grappling with both structural and cyclical difficulties for several years.

Sales of new homes by real estate developers have not yet benefited from this recent upturn in housing production. There are clear signs of improvement, however, in the market for single-family homes built on an individual plot outside a housing development project. Overall, the new-build market is currently struggling to meet demand, which is hampered by issues related to home affordability, often due to excessively high prices or a supply ill-suited to buyers’ needs. As a result, the existing-home market represents a more accessible alternative for the most financially secure households.

⁽¹⁾ A “trough” refers to a limited period in the course of the year when an activity reaches the lowest point in its cycle, falling below a threshold value.

Should we expect a slowdown in the real estate market in 2026?

Since late February, the French economy has been facing a shock, notably regarding energy commodity prices. This is primarily reflected in rising inflation, which is weighing down on household purchasing power. It also affects the cost of business inputs ⁽²⁾, a trend liable to lead companies to scale back on their capital expenditure. Finally, it is also hurting all oil-consuming economies, which are also France’s main trading partners.

All components of demand are consequently affected by the war in Iran: consumption, investment, and exports. To curb rising inflation, the European Central Bank is expected to raise its key interest rates. The recent increase in the 3-month Euribor already reflects these expectations of higher interest rates.

⁽²⁾ “Inputs”: products used in the production process, typically raw materials.

Higher cost of credit

Mortgage rates are consequently expected to continue rising throughout the rest of the year. This rate has already been lower than the 10-year OAT for the past 13 months, an historically unprecedented length of time. It is, however, possible to produce a fair estimation of mortgage interest rates based on the cost of short- and medium-term funding, namely the 3-month Euribor ⁽³⁾ and the 10-year OAT.

Thus, a 1pp (percentage point) shock in interest rates results in a 14bp (basis point) increase in loan rates over the quarter and a 90bp increase after one year. At 3.22% in March, mortgage rates are consequently expected to reach 3.43% in the fourth quarter of 2026, assuming a 2.26% Euribor and a 3.77% OAT. This rise in rates is likely to have an impact on transactions, prices, and, ultimately, on mortgage loans.

⁽³⁾ The Euribor (Euro Interbank Offered Rate) is a benchmark interest rate used in the euro area, based on the average interest rate at which certain major European banks lend money to one another.

Impact on transactions and real estate prices

Regarding transactions, intentions to buy a home expressed by the French have shown no clear trend, either upward or downward, for nearly a year. The deterioration of the economic climate, with the slowdown in economic activity at the start of this year and the rise in the unemployment rate (+0.7pp year-on-year, to 8.1% in the first quarter of 2026), will weigh down on real estate projects, which could experience a 5% decline over the year to 1.026 million transactions. In the existing housing market, this would amount to 890,000 transactions (−6% after +13% in 2025). In the new-build housing segment, the recovery in sales is expected to remain modest.

175 billion euros Amount of projected mortgage lending for 2026 (-6%)

As for real estate prices, after rising by only +0.4% over the past two years, they are liable to decline very slightly over the year (−0.1% in the 4^th quarter of 2026 year-on-year). And, finally, regarding home loan origination, demand is trending downward even though origination in the first three months of the year was slightly higher than it was in 2025.

This softening in demand is expected to be exacerbated in the second half of 2026, driven by higher interest rates and a slowdown in economic activity. At €175 billion, mortgage lending is thus projected to decline by 6% in 2026.

What role does credit play in the acquisition of real estate?

Interest rates are a key variable

The fourfold increase in the average rate for new mortgage loans to households between the 4^th quarter of 2021 and the 1^st quarter of 2024 caused this proportion to drop to 65%, the lowest level recorded since 2012, the first year for which this data is available.

Over the past ten years, the link between borrowing and its cost has been reaffirmed. The profile of the share of transactions financed by mortgage loans closely follows the trajectory drawn by interest rates. Thus, over the 2015–2025 period, a 1pp increase in interest rates is accompanied by a nearly 6pp decline in the borrowing rate and a nearly 4pp decline in the amount borrowed to finance a real estate transaction.

As a result of the interest-rate shock triggered by the inflationary effects of the war in Ukraine, new home loan origination went through a highly volatile period. These developments can be viewed in the light of several observations:

• The number of real estate transactions is the main explanatory factor,
• Real estate prices also have an influence but to a relatively minor yet constant extent,
• Other factors may have a sporadic impact, including changes in interest rates, down payment requirements, loan terms, or regulations.

All categories of borrowers are affected

Although the influence of interest rates is visible across all real estate projects, it varies significantly depending on the category of buyer. In recent years, first-time homebuyers have stood out for their dynamism. The number of financing transactions recorded in 2025 exceeded the volumes recorded at the end of 2019, which marked the peak achieved in the 2010s.

Conversely, other segments remain sluggish with financing volumes in 2025 halved compared with the years preceding the 2022 shock to the economy.

The purchase of a primary residence remains the principal reason for financing a real-estate acquisition (78% in terms of numbers and 83% in terms of amounts in 2025). Over the past 15 years, we have observed a significant change in the structure of loans, with a reversal in the share of second-time homebuyers versus first-time homebuyers (31% and 47%, respectively, in 2025). This situation reflects a continued high reliance on credit for first-time home purchases. It also signals a decline in the number of second-time homebuyers using a loan to purchase their primary residence.

78% Percentage of transactions requiring a mortgage over the past 10 years

While average debt-to-income ratios have remained broadly stable despite the interest-rate shock, other factors have absorbed the impact, manifesting differently across customer segments in 2025:

• First-time homebuyers had already nearly reached the maximum threshold for loan terms; the rebound in their loans in 2025 was primarily driven by the recent drop in interest rates,
• Second-time homebuyers have historically been characterized by a lower loan-to-value ratio; since 2021–2022, the profile has shifted toward higher-income borrowers with larger down payments,
• Finally, rental property investors, who borrow over shorter terms (nearly 20 years), are seeing a sharp decline in average loan amounts coupled with a reduction in investment budgets.