Property credit: borrowers caught between interest and usury

Is the golden age of mortgage credit behind us? With the increase in interest rates decided by the central banks to fight inflation, people who want to borrow are experiencing an increase in the number of rejections of loan applications.

For the brokers (who went so far as to demonstrate in front of the Banque de France), 45% of the cases would be considered too weak due to the attrition rate. False, replies the governor of the Banque de France, which excites the figure of a growth of these credits of 6%. Who is telling the truth?

To answer, it is necessary to delve into the universe of interest and the calculation methods. Created in 2008, just after the subprime crisis, to protect consumers and prevent them from being offered an exorbitant interest rate, “the usury rate is equivalent to the maximum legal interest that credit institutions are allowed to charge when they give you a loan”. explains Banque de France on its page. Namely the interest rate that the bank uses, to which are added administration fees, insurance costs and other fees such as brokers.

In order to be granted, the loan passes a form of control once the bank has given notice. If Taeg, the annual effective annual interest rate, which is the all-inclusive interest rate, exceeds the wear rate, the light turns on. Your loan is declared “island”, i.e. prohibited, therefore rejected.

Worn less quickly than the market

Since 1eh July 2022, a new interest rate entered into force and amounts to 2.60% for loans under 10 years and loans with a term between 10 and 20 years; 2.57% for loans with a term of more than 20 years; 2.99% for bridging loans. The revision will take place in October, as it is redefined every three months.

Only with inflation does the mortgage interest rate, which follows the development of the European Central Bank’s monetary policy decisions, increase every month. It will therefore fluctuate on average around 2% over 25 years. Especially since the formula that takes into account the average credit rate for the last three months plus one third is still a step behind. The candidate borrower is therefore caught in a “scissors effect”, between increasingly higher loan rates on the one hand and an interest rate that remains low on the other.

With inflation, the mortgage rate increases every month.

According to a recent study by Pretto, 18% of files financed in 2021 would no longer be financeable in the June 2022 market context, representing 220,000 households. Half of these refusals would concern 30-55-year-olds (51%) or “the wealthiest asset segment”, according to the survey by Opinion System. Plans for the purchase of a main residence (71%) will primarily be affected.

For this branch manager of the Caisse d’Epargne in Île-de-France, the rate of wear naturally has an effect. “Today, I almost always ask for at least 10% down payment in addition to notary fees to get the loan into the usurious interest rate.

Which means borrowing less. The banks also play on Taeg. Either by skipping the mortgage insurance rate, which is one of the most important elements that make up your loan offer – because it is possible for borrowers not to automatically take out mortgage insurance proposed by the bank issuing the offer, by bringing competition into play – or by to refuse loan offers from brokers, which makes it possible to reduce Taeg drastically.

The tightening observed by this credit specialist also comes from a change in the banks’ business policy. Previously hyper-aggressive via offers with extremely low prices, real estate credit was “a loss leader” to capture new customers and then collect opening accounts, bank books, credit cards, investments and fees.

“Today we are made to understand that mortgages are no longer a priority, the most important thing is to keep our customers,” explains our branch manager. Customer advisors are more careful with the rest of life – at least 1,200 euros – and it is better not to make your end of the month short. In addition, they scrutinize the debt limit so that it does not exceed 35% of income, while we could go up to 37% in, for example, Paris, lists the expert.

A drastic skimming

This selectivity is not included in the Banque de France statistics, since skimming takes place before the examination of the case during the interview. At his agency, our witness director notes that 20% to 30% of cases are dismissed after this first interview. “Banks are careful not to write letters denying loans,” he confirms.

For future buyers, this is a real problem. If the latter has signed a sales agreement, they will not be able to get their loan. They will be forced to compensate the seller according to the rate stated in the clause, often up to 10% of the sale price.

The borrower’s insurance jackpot

Since 1eh From September each borrower can freely choose their loan insurance and change it at any time via the insurance delegation. This reform, adopted in February, could save borrowers 500 million euros each year. Or from 5,000 to 15,000 euros for a loan of 200,000 euros.

For banks, these insurance policies look like a jackpot. Every year, borrowers use €7 billion in insurance premiums for their mortgages. And nearly 88% of the market is owned by banking players, compared to 12% for alternative players. A highly profitable manna, since “out of 100 euros in premiums paid by the insured, only 32 euros are paid to them in compensation. This margin of 68% is more than double what is practiced in home and car insurance,” notes UFC-Que Choisir.

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