Mortgage loan: why the rate of erosion can obscure the file

Mortgage loan: why the rate of erosion can obscure the file

A godsend for some, bad news for others: the maximum rate at which a credit institution can lend money prevents access to mortgage credit for thousands of families. decoding.


Mortgage Loan: Why the Erosion Rate Can Ban a File – iStock.com/kuppa_rock

context of high rates

The era of low-interest loans is over. If, a few months ago, borrowers could still get a 20-year mortgage at 1%, today the average rate is about 1.5% over the same period. Despite this increase, it remains well below inflation, which should approach 7% in September.

What is the attrition rate?

The usury rate (or minimum) is a regulatory rate that has been put in place to protect borrowers from exercising excessive rates of interest in times of economic instability and thus maintain macroeconomic equilibrium. Determined by the state, the wear and tear rate is governed by Section L314-6 of the Consumer Code. It corresponds to the maximum rate at which a loan can be granted by a credit institution and applies to both mortgages and consumer loans, overdraft accounts, or even revolving loans. A credit institution that offers an effective annual rate higher than the usury rate will expose itself to criminal penalties.

How is it calculated?

The rate of usury depends on a number of factors, such as the type of loan, its value or the term of the loan. It is determined by the Bank of France on the basis of an increase in the average effective rates applied by credit institutions by one third. In the second quarter of 2022, the actual average rate charged by credit institutions for mortgages over €75,000 over a period of 10-20 years was 1.95%. In the third quarter of 2022, the interest rate for these loans was 2.60%.

Good news for borrowers, but…

The new usury rates applicable from July 1, 2022 were published by the Banque de France at the beginning of the summer. It increases to 2.60% for fixed rate loans for 10-20 years, and to 2.57% for fixed rate loans for 20 years and more. If the small increase protects the purchasing power of borrowers, it risks affecting the loan files of many households. In fact, by combining application fees with insurance and borrowing rates, one in five households will not see their application successful because the financial institution will exceed the maximum legal rate.

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