How much does the bank bring to your mortgage? If granting a loan has a cost for banking institutions, then the rhetoric of wanting to use this product only to attract new customers without bringing in a penny seems wrong.
It’s a common phrase that we’ve heard for a long time, but which is becoming more and more present as prices rise: a mortgage will bring nothing to the bank. When you ask an expert in the banking sector, the answer is clear: The bank’s margin is now very small or even zero for some networks. I think for many files, there is no bank margin.
Pascal Sciakaluga, Commercial Director of Crdit Coopratif, emphasizes the idea of a product that is far from profitable: it is said that for a bank to make money, it must be At least two points of brokerage margin (The difference between the interest paid by individual borrowers and the cost of the resource that allows the bank to credit, Ed.). But in recent years, we are a long way from that.
Very different costs from one bank to another
Outside of this note, numbers are hard to come by. Concretely, what are the bank’s costs? And, by extension, what do they gain? Asking the banks how much the mortgage is getting them is like asking Tim Cook to explain the price of the new iPhone: good luck getting a detailed answer. No one reveals the construction of its margins, and we can’t require banks to do so as long as no company is doing it, explains Cecile Rockellor, a spokesperson for broker Empruntis. If everyone who provides a service starts explaining their prices, you won’t buy much.
The answer is more complicated It varies, sometimes drastically, from one bank to anotherDepending on the structure of its financial resources or operations (a traditional bank with a large network of branches, or a 100% online banking service on the Internet). Pascal Sciakaluga explains that there is indeed a cost to human resources. It’s all about the people who will sell the mortgage, deal with the after-sales service, work on the file as per its complexity… It’s all part of the manpower cost, which is partly reflected in the application fee.
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In this management fee, the rate can vary from simple to triple depending on the facility. It also takes into account the cost of IT, operating cost of the bank, etc. The method of management differs from one institution to another, confirms Herv Wehr, head of credit risk advisory activity at Deloitte. The more we are in a structure with an industrial process, the higher the cost of management than the total fixed cost. In a less efficient architecture, each file will generate significant administrative costs.
Supplier cost increases
But the most important cost to the bank that affects your mortgage rate is above all the resource cost. To get the money that he will lend to you, the bank has two solutions: plunge into its own internal resources, mainly through the savings of its customers, or buy it on the market. The savings are used in the management of ALM (Management between assets and liabilities of banks, editor’s note), Herv Phaure explains. The more the bank restricts savings i.e. savings that are withheld over several years, which the customer cannot withdraw at will (like PEL or PER for example), the more it helps the banks to improve their ICT (the internal conversion rate that determines the cost of the resource). On the contrary, banks that do not have many savers are clearly at a disadvantage In a market where rates are rising and where you have to go out for financing.
As banks are forced to buy up their resources, the benchmark ten-year government borrowing rate is skyrocketing. The cost of credit to the bank is increasing due to the cost of the resource, Ccile Roquelaure develops. This is a measurable fact since then OAT which was 0.2% in January is currently 2.25% (As of June 22, editor’s note).
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A two-point increase not passed in mortgage rates, which rose from an average of 0.94% in January over a 20-year period to 1.54% in June over the same period. Today, when you’re a bank with no savers, you’ll likely have stopped making mortgages, or not far off, a bank official points out. Banks stuck in interest rate It cannot pass on increments. So at some point, you either get stuck and stop, or hit your own chest.
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Despite the current situation, the majority of banking institutions still want to provide real estate loans, Loyalty product par excellence. It’s a way to get new customers who will be loyal for many years, says Pascal Sciakaluga. The new customer will have their accounts localized, they will be deposited in the banks, so get a credit card, home insurance… The goal is To have a global relationship with our customers. We need a profitable relationship, of course, but it’s also an advisory one.
If the client accounts are domiciled, the bank can also have current deposits and a portion of his savings, complete with Herv Phaure. Possibly the bank also Retrieve information about the customer and you will be able to offer him other products Supplementary credits as well as credits, such as consumer credits, have higher profit margins. By earning the customer’s loyalty with a mortgage, the bank can thus use the positive savings of the latter and offer him additional offers that will make it possible to achieve profitability.
A product that remains profitable
However, the rhetoric that mortgage credit is a loss leader and offers nothing to banking institutions is not to everyone’s taste. To say that banks no longer make their living on credit, or even that credit would be a product sold at a pure loss, This effectively legitimizes business practices Turned to other worlds such as insurance, or client banking, analyzes Aurlien Soustre, CGT-Banks and Insurance representative on the Financial Sector Advisory Committee. However, it would be hard to understand that organizations compete so much on a product that they lose money on it. This dynamic to me is the proof that it is a profitable product.
A report by the Prudential Supervision and Resolution Authority (ACPR) published in September 2021 titled Housing Finance in 2020 gives some indication regarding the margin earned on housing loans. Thus, the net margin (gross margin, management fee and cost of risk) on new home loans was 0.45% in the first quarter of 2021 compared to 0.12% in the first quarter of 2020. This means that each loan of 200,000 euros issued by the bank brought in at least 900 euros, not counting profits on the borrower’s insurance and bank fees on the account linked to the loan.
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A phenomenon that risks hitting margins is that banks have so far given out loans at very low rates over fairly long periods, while refinancing themselves over the long term, Orlen Suster explains. They have loaned at fixed rates but will have to refinance at rates that will go up a bit. However, according to him, banks continue to make money not only thanks to the various products offered to new customers But also on the same credit. Otherwise, they themselves will choose to offer much lower real estate credit.
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