Mortgage credit: why borrowing will be more difficult in the coming weeks

Mortgage credit: why borrowing will be more difficult in the coming weeks

Spring real estate, a period traditionally favorable for transactions, is in danger of being seriously disrupted this year. After borrowers have already struggled with a high 20-year average credit rate, which has increased by 40 cents since January to stand at 1.45%, borrowers must now face another difficulty. The Bank of France settled usury rates at the beginning of April at 2.40% (more than 20 years ago), which, combined with the continued rise in credit rates, had the effect of causing this what brokers call the “scissors effect”. A mechanism that could further complicate access to credit for the middle and working classes.

Very limited room to maneuver

To fully understand, let us first return to this famous concept of wear rate. This maximum rate, which banks cannot exceed, is calculated by the Banque de France on the basis of the average interest rates already charged by lending institutions during the previous quarter, which increased by a third. Thus, the usury rates for the second quarter of 2022 have been calculated on the basis of the average lending rates applied by banks between January and March. A period when rates were particularly low. But for several weeks, credit rates have risen and are approaching rates of erosion. A situation that limits the scope for banks to maneuver, as it is caught in a pincer movement between the high cost of money and the stability of usury rates.

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If the average loan rate over 20 years is currently around 1.45%, interest rates close to 2% can be offered on less solid files. By adding in additional costs and insurance costs, the annual effective annual rate (APR) can quickly exceed the wear rate set at 2.4%. “So far, it has been the most fragile profiles that have been excluded from the credit market, notes Cecile Rockellor. The scissors effect will also exclude more traditional profiles that are in the middle class.”

No improvement until July

If usury rates are initially introduced to protect borrowers and prevent banks from offering rates that are too high, this device shows its limits in periods of uncertainty. “This system is effective when credit rates are stable, as Maël Bernier identifies. But when interest rates rise, as they are now, usury rates turn against the borrowers.” The situation should not improve before the beginning of July. It is already on this date that the Bank of France will determine the next rates of wear.

To try to pass your file with the banks in this unfavorable context, it is more advisable than ever to promote competition between different institutions to try to earn a few cents on rates. This can make a difference in lowering the APR below the usury rates and thus successfully obtaining a loan.

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