40% of loan applications are rejected
Haro on the threshold of usury … Mortgage brokers gather: the threshold of usury obscures a lot of mortgage applications. The rejection rate for this reason goes up over the months, and the regularly mentioned rate is a 40% rejection to exceed the wear threshold. This leads to a decrease in the activity of brokers, as opposed to their intermediation with banks. Those, for their part, respond only positively to their best clients, whose financial assets are large, or whose contribution is significant (30% of the amount borrowed).
The wear rate of the cash center
Therefore the thresholds of usury are criticized by the entire real estate profession. From credit brokers, whose business is in the middle of the road, to property developers whose sales of new properties are collapsing, due to a lack of funding for first-time buyers. However, this protection, through these thresholds of usury, makes it possible to prevent borrowers, without sufficient contribution, from embarking on a real estate project on credit, without having sufficient financial ease.
A frustrating situation for applicants, but it must be understood that the rate offered by their bank will not be good in any case. A very bad financial deal, even if prices certainly continue to rise. Real estate prices are very high, and one cannot pay the full price on both sides. Borrowing €250,000 over 25 years at a fixed rate of 2.48% costs the borrower a whopping €79,000 in interest, or 31.6% of the amount borrowed. This rate of 2.48% is below the usury threshold, however this credit is already very expensive, given the interest rates currently in force (1.8% excluding insurance).
The argument of credit brokers is that if usury thresholds were calculated monthly rather than quarterly, during the period of steep price hikes as at present, such credit requests would be granted, because it is below erosion thresholds. And therefore ? We conclude from this that when rates rise, usury thresholds must be calculated monthly, and when do they decrease every three months? Because the biggest risk is this, when the rates go down, and this has been the case for the past years, the thresholds for usury are very high compared to the market rates. Borrowers got into debt at a very high cost. In fact, we simply want the wear rates to be so high that all orders are successful, as the business requires. After that, it will just be more defaults.
The desire to borrow beyond the limit of usury, even if it were allowed, would be a very bad business. Loan pennies no longer have a place in our society, so changing the rules for calculating the threshold for usury will simply go back to the Middle Ages.
Mortgage Erosion Rate
|Wear rate per person (applied in Q3 2022) (1)|
|Maximum mortgage rate (more than 75,000 euros borrowed)|
|Credit erosion rate for less than 10 years||2.60%|
|Credit erosion rate for less than 20 years||2.60%|
|Credit erosion rate for 20 years and more||2.57%|
|carryover loan erosion rate||2.99%|
|Variable credit erosion rate||2.45%|
(1) Pricing source: Banque de France
Mortgage cost of 2.48% over 25 years
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