House prices have increased significantly in recent years under the effect of very strong demand, for both new and old properties. But at the same time, mortgage rates are still at historically low levels. By Olivier Grenon-Andrieu, president of Equance.
From 1 January, the recommendations of the High Council for Financial Stability (HCSF) must preserve the financing system by limiting loans of too long duration (limit of 25 years except in new buildings limited to 27 years) and excessive indebtedness (35% debt limit, insurance included).
While banks have the right to derogate from these rules, they are obliged to show greater selectivity in their records.
Whatever the project (buying an apartment or a house), the banks will also take care of:
– The debt ratio o DTI (for income): the amount of credit cannot exceed 7 times the annual amount of income taken into consideration
– The weight of the loan in the transaction o LTV (loan to value): the loan amount cannot exceed the amount of the property financed
Towards a rate hike?
The rates have been very attractive for many months (average nominal rate of 0.9% over 15 years). However, professionals fear a more or less short-term rate hike. Since the end of 2021, some banking institutions have begun to raise their rates following the increase in 10-year public borrowing rates (OAT) on which mortgages are partially guaranteed.
In this context of rising inflation, families therefore have every interest in getting into debt today to acquire their main residence or to structure a real estate investment operation.
We have seen for many months, years, the offensive of account managers to sell their bank’s insurance. An offensive that sometimes even pushes to refuse the loan if the borrower refuses the insurance. Everything is done subtly …
Even if the promulgation of the Lemoine law is awaited, allowing at any time to modify the insurance, thanks to the inter-annual termination of the borrower insurance with the aim of increasing competition for the benefit of consumers, this will not change the important objectives of banking groups. to place their own internal insurance. Borrower’s insurance is proving to be the “cash cow” for banks looking for revenue.
The warfare between banks and insurance companies does not stop. The risk of losing the insurance contract could lead banks to raise lending rates. A hypothesis that is all the more probable if in the coming months the level of inflation will be maintained, forcing the banks to revise their interest rates upwards.
Expatriation: the real estate headache for the French abroad
Residents outside France still face some difficulties in financing their real estate project on the national territory. Banks are often reluctant to finance expatriates with local contracts, particularly in countries that have not signed the Information Exchange Standard (CRS) with the European Union.
It is therefore preferable that expatriates are under contract “detached” abroad to apply for a loan from a French bank. Banking institutions will be attentive to their professional income but will try to have a global vision of the situation of the expatriate: both in the local contract and in the expatriate contract, the family situation, marriage, salary, property, the context of the country of expatriation ….
Consultants are therefore an invaluable help in supporting expatriates in finding a bank to finance their project. When granting a home loan, the bank often requires commercial consideration from the borrowers.
Part of the excessive savings accumulated by the French since the start of the health crisis should continue to support the housing market this year. However, two main macroeconomic risks could affect the real estate market: a possible sudden and uncontrolled hike in market rates as well as tensions over the availability of building materials / labor for construction / renovation.