High credit rates and low interest rates, this is the current mix that can dominate the real estate market. Many professionals in this sector are concerned about this situation. The Ministry of Economy must provide solutions by July 1…
Quarterly Delay Calculation
The interest rates are the thresholds set by the Banque de France after which a banking institution is prohibited from lending money. Objective: To protect borrowers by preventing loans from being given at excessively high rates.
Corrosion rates are determined at the end of each quarter for the following quarter. Thus their calculation takes into account the actual average rates applied by the banks during the previous quarter, according to the term of the loans (less than 10 years, 20 years and more, etc.). Then it is increased by a third.
A loan is said to be “interest-based” (and will therefore be rejected) when it is granted at the total effective rate, or APR (including the cost of the credit itself and the cost of the borrower’s insurance, management fees, etc.), which exceeds the applicable wear rate.
The lower the wear rates, the greater the problem
Thus, the June usury rates, applicable since April 1, were calculated based on the rates already granted (loan insurance and all costs included) from January to March 2022. When credit rates were more attractive than today …
In fact, if interest rates decreased in one year, and thus went from 2.60% on April 1, 2021 to 2.40% on April 1, 2022 for loans of 20 years or more, then credit rates have fallen on average from 1.20% over the course of 20 years. a year in June 2021 to 1.55% in June 2022. The nominal rate should therefore be added to the borrower’s insurance cost, management fees, etc.
This leads to the exclusion of more and more borrowers. And not just the most vulnerable or those who have a high insurance rate due to age or a health problem.
Borrowers after solvent
Loan files that would have been accepted without difficulty six months ago are rejected today. For example, a 30-year-old who wants to borrow €205,000 alone over 25 years, with €2,500 in net income and 15% down payment, sees his loan file rejected by the bank, and reports the mortgage broker.
The proposed credit rate was 1.95%, to which the borrower’s insurance of 0.36% must be added, not to mention the guarantee costs of €2,255 and additional costs (file and brokerage) of €3,000. Either the 2.57% APR is higher than the 2.40% erosion rate… “With rates sometimes as high as 2% excluding insurance, some files no longer go through,” the broker notes.
According to mortgage broker Cafpi, one in five files are now rejected for exceeding the erosion rate. However, these are the “soft” borrowers.
Calculation method must change from July 1
The following wear prices are scheduled to be published in the Official Gazette on July 1. It will then be in effect until September 30. Many real estate professionals ask to change their calculation formula. “We must review this rate of erosion as quickly as possible, in particular by excluding borrower insurance from the calculation and setting a minimum level consistent with the inflation rate over the past 12 months. Otherwise, we risk disrupting the market,” challenges Olivier Lindrey, President of CAFBI. For other players, wear rates can be reviewed every month, and more so every quarter.
According to Capital magazine, the Ministry of Economy is working “to find quick solutions to take into account the impact of high borrowing rates on usury rates. At the end of May, Percy traded with the French Banking Federation to find a balance between “consumer protection” and “access to property”.