Depreciation rate: why does this standard prevent so many mortgage applications?

Depreciation rate: why does this standard prevent so many mortgage applications?
Depreciation rate: why does this standard prevent so many mortgage applications?

Borrowing rates recorded on 07/18/2022

The usury rate corresponds to the maximum at which banks and other credit institutions can grant a loan. This threshold, set by the Bank of France every quarter, is intended to protect the borrower from arbitrary rates.

Interest rate, calculation and definition

The usury rate represents the maximum legal rate that mortgage credit institutions and banks must adhere to when granting loans. The limits of usury vary according to the type of loans and the term of repayment. In addition, wear rates also depend on the loan amount. Thus, there is an erosion rate for each category of loan, including:

  • Fixed rate mortgage for less than 10 years;
  • Fixed rate mortgage for more than 20 years;
  • consumer loan or business loan in the amount of between 6000 and 75,000 euros;
  • bridging loans;
  • Variable rate loan
  • etc.

They are calculated quarterly by the Banque de France, and are based on the average rates in force applied by banks in the previous quarter after an increase of one-third. The different wear rates are published at the end of each quarter in the Official Gazette and are set The legal maximum limit for the following quarter may not be exceeded.

Wear rate and APR

If the annual effective annual rate (APR) exceeds the usury rate, the credit is classified as usurious. The rate of wear therefore corresponds to the maximum that should not be exceeded for TAEG. Failure to comply with the wear rate is an offense punishable by a fine of €300,000 and imprisonment for two years under Section L. 314-5 of the Consumer Code.

However, it must be remembered that the annual interest rate represents the total cost of credit. It is expressed as an annual percentage of the amount borrowed, and therefore includes not only the nominal bank rate, but also all the following additional costs:

  • borrower insurance cost;
  • any application fees and commissions;
  • Mandatory guarantees.

Scissors effect and attrition rate in 2022

The consequences of the current calculation method are manifold. By including loan insurance, many borrowers are excluded from mortgages. It’s especially The status of the borrower profiles that present the most risk and those whose credit insurance rates are higher, such as the elderly or people with a serious medical history. Thus, the annual interest rate quickly exceeds the usury threshold and the loan offer cannot succeed.

In addition, the Bank of France uses the credit rates applied during the last quarter to calculate the erosion rate. Thus, usury rates do not reflect the reality of the market, especially when credit rates vary sharply upwards as has been the case in recent months. scissors effect caused by The discrepancy between rapidly increasing borrowing rates and extremely low wear ratesenough to exclude a large number of real estate project promoters.

As mentioned earlier, there are many rates of wear. For example, the usury rate applicable on July 1, 2022 for a “fixed rate home loan of 20 years or more” is 2.57%, while the average rate over 20 years is 1.85% on national territory and 2% in Ile de France.

The importance of preparing your file

Your real estate purchase may be financed by banks. These remain open for financing and continue to support borrowers in their life project. To increase your chances of seeing the success of your loan application, here are some tips to follow:

  • Make a personal contribution of at least 10% of the total amount of the transaction. This amount, which will be used to finance the notary and guarantee fees, reassures the bank about the borrower’s ability to save;
  • Provide proper account statements. Avoidance of overdraft is essential to demonstrate good management of bank income for the bank;
  • Play the competition. Not all lending institutions offer the same terms. To find out which bank offers the best offer, you have to compare.

In this context of rising current interest rates, the use of a broker becomes essential. This professional makes it possible, thanks to his experience and network, to get a mortgage at the best price. It is also responsible for finding insurance for the borrower at the cheapest rate while ensuring compliance with the collateral equation.

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