The churn rate limits access to the loan

Difficult environment for borrowers who have long been subject to the constraints imposed on the property acquisition. The conditions for hoping to borrow with a fragile portfolio or lack of resources become increasingly complicated. This phenomenon is reinforced with theapplication of the wear rate imposed on banks. We will explain everything to you!

What is the wear rate?

the wear rate corresponds to the concept of Annual percentage rate (APR), which is the maximum rate authorized for financial institutions at the time of granting a loan. Specifically, banks cannot offer a rate higher than the usury rate to their borrowers, under penalty of exposing yourself to criminal penalties (two years of imprisonment and a fine of 300,000 euros). This limit is set at the end of each quarter for the following quarter by the Banque de France.

This rate is also associated with the following elements in the Calculation April :

  • The interest rate of the loan;
  • Registration fee;
  • Real estate appraisal fees;
  • Any fees payable to an intermediary, such as a broker;
  • The cost of insurance and mandatory guarantees (mortgage or deposit);
  • Management fees (opening an account, maintaining an account, etc.).

In principle, the wear rate should act like a protection for the borrower, as it imposes rate regulation on lending organizations and prevents them from charging prohibitive rates. In practice, it’s a little more complicated than that.

The calculation of the wear rate

You will understand, the wear rate has retroactive application, since the Banque de France is based on the average rates charged by banks in the last quarter and on plus a third. It also differentiates different loan categories by type and duration, in order to determine a specific usury rate for each.

We can therefore find:

  • The fixed rate loan with a duration of less than 10 years;
  • The fixed rate loan with a duration between 10 years and less than 20 years;
  • The fixed rate loan with a duration equal to or greater than 20 years;
  • The variable rate loan;
  • The interim loan.

More concretely, in the 4th quarter of 2021 the average rate applied by banks for a fixed loan with a duration between 10 years and less than 20 years was estimated at 1.79%. In the first quarter of 2022, it increased by a third, rising to a wear rate set at 2.39%. Therefore, for this quarter, banks will not be able to grant loans of this type with an APR greater than 2.39%, under penalty of penalties.

The wear rate limit

although the wear rate it was established with a laudable intent, the approach does not meet the expected interest. The usury rate is disparaged by mortgage professionals, judging it too much inconsistent and disconnected. In fact, the usury rate is a calculation that was established in the past, on dated data which they do not take into account market developments. Thus, in the an environment where rates are skyrocketing in a very short period (rates have risen by 0.20% each month since February), the usury rate cannot begin to rise until next quarter. In short, it hardly reflects reality, and the rates currently applied, due to inflation, collide with the usury rate corresponding to obsolete rates, creating this “scissors” effect identified by many players in finance and real estate.

The consequences: an unfavorable mortgage environment for many borrowers

The HCSF requirements, i.e. a debt ratio limited to 35% and a loan term of no more than 25 years, had already significantly limited access to credit for more fragile profiles, but the rise in interest rates in recent months, combined with general inflation internationally, has completely excluded them from home loans. For files without contributions, it becomes almost impossible to hope for funding. Now these are the more classic profiles (i.e. the middle class) who find themselves penalized by a rigid government and banking policy. These two categories of borrowers are the most affected by this phenomenon.

For this quarter, for example, banks cannot sell a loan at a rate greater than 2.40% for a fixed-rate loan over a period of more than 20 years, knowing that rates are rising rapidly. In January 2022 it was still possible to take out loans with interest below 1% in 20 years; now the average rate for April is 1.35%. A huge climb!

“The rise in property rates and the barrier imposed by the current usury rate no longer allow banks to offer loans. Since May, some banking groups have stopped lending until the next quarter “, informs Christophe Probst, sales manager of Cyberprê Banks, in fact, are increasingly faced with a crucial choice: either to lend at a loss or to stop altogether financing. “Since rates are not set to fall anytime soon, the mortgage landscape looks difficult for the future,” he continues. However, the rate hike has not yet affected the rates charged by banks and most continue to lend . The time has come to take advantage of the financing! “

Assistance from an intermediary

More than ever, thethe support and advice of a real estate agent are essential in obtaining a loan. Without being guided by an expert, it seems difficult to find a banking solution on your own. the real estate agent is not only able to win the best credit ratebut he also has fun privileged relationships with banks which give it a bargaining force more important. Contacting a real estate agent can be the solution to get financing!

The latest developments starting June 8, 2022 – good news for borrowers!

The alarm cry of the banks did not remain deaf in the ears of the government. Faced with the complications related to access to credit, the state is inclined to open the debate on possible changes in the wear rate. We remind you that the usurious rate values ​​will not be redefined before July, and the new calculations may not be sufficient to compensate for the increase in borrowing rates.

Consequently, the Ministry of Economy and Finance expects to find solutions to prevent the current situation from recurring in the next quarter. If the watchword is “consumer protection”, the government understands the need not to curb access to property. So what can we expect? It seems that the deliberations can be oriented towards a more consistent calculation of the usury rate in line with fluctuations in mortgage rates. Keep on…

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