The usury rate is blocking real estate loans!
Even in a context of gradual but sustained rise in credit rates, the real estate market remains extremely dynamic — especially in Paris. But the usury rate, a protective mechanism for the borrower, stops the machine: while banks are in favor of granting real estate loans, transactions are blocked by a proposed borrowing rate, lower than that of the maximum authorized rate. Beyond its revaluation, scheduled for July 1, real estate professionals are urging Bercy to review its calculation method.
Real estate credit: rising rates
Borrowing rates as of June 2022
In June 2022, figures from the CSA Housing Credit Observatory show an average rate of:
- 1.15% over 7 years, with the lowest rate of 0.75%;
- 1.20% over 10 years, with the lowest rate of 0.65%;
- 1.40% over 15 years, with the lowest rate of 0.90%;
- 1.50 to 1.55% over 20 years, with the lowest rate of 1.10%;
- 1.70% over 25 years, with the lowest rate of 1.30%.
Compared to May 2022, the values increased by 5 cents for loans over 7, 20 and 25 years, when they are relatively stable over 10 and 15 years. As a reminder: the borrowing rate, in June 2021, was 1.05% on average, all durations combined.
A gradual and sustained increase
The mortgage rates in June 2022 reflect an upward trend observed since the beginning of the year. This increase is explained by the combination of 2 factors: the increase in the 10-year OAT rate, the interest rate on French government bonds over 10 years and inflation, a reflection of supply difficulties linked to Covid-19 and the war in Ukraine.
According to the Observatory, the increase in the inflation rate has been +139 basis points since December 2021 and +146 points for the 10-year OAT, while it is “only” +32 basis points for loan rates, even if the phenomenon has accelerated over the last 3 months.
On this subject, François Villeroy de Galhau, the government of the Banque de France, calls for more perspective: “Everyone seems to have forgotten a bit, but mortgage loans are usually around 2 to 3%. We are leaving exceptionally favorable conditions, which were justified by too low inflation, and we are moving towards more normal financing conditions.”, he points out.
The wear rate protector blocks purchases
A borrower protection mechanism
Set by the Banque de France, the usury rate is based on the average of credit rates granted over the previous quarter and increased by a third. Its main objective is to protect borrowers from an abusive interest percentage. Each quarter and for each type of loan (including real estate loans, but also bridge loans and consumer loans), the Banque de France determines this rate — in fact, prohibiting all credit agencies from exceeding it.
Although this increase in mortgage rates affects all borrower profiles, some transactions are blocked, only by the usury rate mechanism, even though they are validated by banks... Indeed, the global effective annual rate (APEG) cannot exceed this rate of usury: however, as the APR includes the nominal rate of banks, but also that of borrower insurance, administration fees, guarantees, etc., the difference between these 2 reference rates is small.
The gradual erosion of the wear rate
For almost a year, the usury rate has continued to crumble, gradually reducing by a few tenths of a point, every quarter: in July 2021, it was 2.48% for 20-year-old mortgage loans; it rose to 2.41% in January 2022, in January 2022, to reach 2.40% in June 2022. In fact, as the average rate applied in the 2nd quarter of 2022, for 20-year loans, was 1.8%, the usury rate currently applied is 2.4%, or 1.8% increased by a third.
Today, the current situation creates a “scissor effect”, which contributes to the rejection of 1 out of 5 loans because of this rule, acting equally on the most fragile cases, as well as on that of the most affluent.
Bercy, asked to save the real estate market
The deadline for reassessing the usury rate on July 1
By the deadline of July 1, which marks the start of a new quarter, the wear rate will be recalculated and should increase slightly. Indeed, the current rate does not reflect the substantial increase in borrowing rates observed since April 1, hence the “scissors” effect, which mechanically excludes certain households from obtaining loans...
However, real estate professionals believe that this adjustment will not be sufficient to support the market: however, while the subject is very technical, it has potentially significant financial consequences for the French. A question that has a political dimension on the eve of the debates around purchasing power...
Towards a change in its calculation method?
Faced with this method of calculation, considered too complex and not updated often enough, the Ministry of the Economy seems ready to make it evolve: it even says “work on quick solutions to take into account the impact of rising borrowing rates on usury rates.”
After meeting with the French Banking Federation at the end of May, Bercy must quickly find the right balance, between home ownership and consumer protection...
Business to follow!
