You want to buy an apartment and you have submitted a mortgage application. Whether it will be accepted remains to be seen. Concern on this point is currently strong. According to real estate agent Pretto, 18% of borrowers are unable to obtain the loan and the most modest families, with less than 3,000 income per household, are the most affected by this waste. It is 30% who are refused credit, when families who earn more than 5,000 euros are only 13%.
To reach these conclusions, Pretto analyzed more than a million credit application files that obtained an agreement from the banks in 2021. The online broker then simulated these same requests taking into account the average rates of June 2022, or 1 , 6% in twenty years. Two reasons explain this increase in rejections: the low usury rate in a context of renewed increases in borrowing rates and the bond since 1uh January 2022 to comply with the regulations of the High Council for Financial Stability (HCSF).
1. A usury threshold for each type of loan
1 uh July 2022, the Banque de France announced the new usury rates: for mortgages, it goes to 2.60% for fixed-rate loans with a duration of ten to twenty years, and to 2.57% for loans at a fixed rate with a duration of twenty years or more. This usury rate, also called the “usury threshold”, affects not only mortgages, but all loans, including consumer loans; it is specific to each type of loan. It is defined by article L.314-6 of the Consumer Code. This is the maximum annual percentage rate (Taeg) at which an individual can borrow. The Taeg includes not only the loan rate, but all mandatory fees. When calculating the Taeg of a home loan, enter not only the interest rate, but also the administration costs, guarantee (mortgage or deposit), compulsory insurance. “Banks sometimes encourage people to take out borrower insurance, which is more protective than compulsory insurance. This additional cost is not taken into account in the calculation of the Taeg ”, explains Matthieu Robin, Deputy Head of Studies within the UFC-Que Choisir. The granting of a loan with a rate higher than the usury rate is punished with a fine of 300,000 euros and two years of imprisonment, and an administrative closure of up to three months (L.314-50 of the Consumer Code).
2. A rate revised every three months
The usury rate is calculated from the average Taeg applied in the previous month, for a type of loan, increased by 33%. This average is calculated by the Banque de France on the basis of the data provided by the banking institutions for the previous month. The usury rate applies for three months, so it will only be revised to 1uh October.
While property rates have been steadily declining in recent years, the recovery in inflation has caused them to start rising again since January 2022. Faced with this situation, bankers and brokers have called on the government to ask for a change in the definition of the usurious rate; the Minister of Economy told the magazine “Capitale” that he was “open to the evolution of the usury rate formula” and to work “on quick solutions to take into account the impact of the increase in rates on the usury rate” by researching the right balance between “consumer protection and access to property”.
The consumer federation Que Choisir is not in favor of a change in the method of calculating the wear rate. “We do not want the current norm, average rate plus 33%, to be touched, but in a context of rate hikes, to give more margin to brokers and bankers, the usury rate could be revised every month and not every three months”, says Matthieu Robin.
3. Avoid over-indebtedness
From 1uh January 2022, the recommendations made at the end of 2019 by the High Council for Financial Stability (HCSF) regarding the debt ratio and the maximum duration of a loan became binding. The debt ratio of a family wishing to obtain a mortgage must not exceed 35% (including insurance), all loans combined. The maximum duration of a credit must not exceed twenty five years. The off-plan purchase, or Véfa (sale in the future state of completion), the construction of a single-family house, the acquisition in the old one with heavy renovations (at least 25% of the total transaction amount) can, however, give rise to a twenty-seven year credit. Banks also have the ability to break free from HCSF rules in 20% of cases, the vast majority (80%) of main residences. These exceptions only affect 30% of first-time buyers. If the definition of the usury rate leads to more rejections for low-income families, the exceptions to the maximum debt ratio, set by the HCSF, mainly concern wealthy households, for which the rest to live remains significant.