the number of loans collapsed, the more modest ones expelled from the market

Slowly but surely, the mortgage market has been deteriorating over the months. According to data from the Crédit Logement / CSA Observatory, the production of credit for the purchase of a home showed a further decline in the second quarter, accentuating the trend observed in the first quarter. On an annual basis, the amount of loans granted decreased by 12.5% ​​between April and June, while the number of loans decreased by 9%.

In the first half of the year, the decline in production reached 5.6% in value and 7.3% in volume, with a market for old buildings much more affected than that of new buildings. Another observation: the solvency indicator, calculated by Crédit Logement, a banking body that manages half of the loan guarantees, shows signs of weakness; the increase in the average down payment only partially offset the increase in the average amount of a loan (+ 8% in the first half) at a further higher cost.

However, the Supervisory and Prudential Resolution Authority (ACPR) has just highlighted that the risk remains well controlled, thanks to a concession policy based on the solvency of households (and not on the value of the property) and mostly granted at a fixed rate. (and protected by insurance and sureties).

An accelerated contraction of production

“We have a market that has fallen into decline mode”, summarizes the economist Michel Mouillart, university professor and scientific consultant of the Observatory. And the prospects are not at all encouraging for the second half, according to Crédit Logement. According to the Banque de France economic scenario of last June, which provides for an average credit rate of 1.55% in 2022 (i.e. an average rate of 1.9% at the end of the year), credit production (accepted offer ) could decrease by 15% this year to 170 billion euros, compared to 200 billion euros in 2021, or a return to the production levels of 2018 and 2020.

“It would be easy to attribute the drop in production to the rise in mortgage rates. But we are careful because the rates have finally risen limply with regard to inflation or the increase in the OAT rate “, warns Michel Mouillart. According to the Observatory, the average rate (excluding insurance) stood at 1.4% in the second quarter, compared to 1.12% in the previous quarter. In June this average rate reached 1.52%, confirming an acceleration underway since last March. This increase affected all types of customers and all loan durations in a relatively uniform manner.

This average rate could reach 1.9% at the end of the year, or even 2.25% in a more difficult back-to-school scenario in terms of inflation. Mortgage brokers notice more and more rates offered at over 2% in July! A bank now even offers a single rate regardless of the borrower’s profile, income or loan term: 2.10% over 15, 20 or 25 years! “, for example reports the broker VousFinancer.

Margins collapsed

Since last December, according to Crédit Logement, average rates have risen by 42 basis points, but this is four times less than inflation and even five times lower than the 10-year OAT, which serves as a benchmark for real estate credit. “This rate hike is certainly rapid but it falls short of the brutality of the hike one would expect when looking at inflation or market rates,” observes Michel Mouillart. Clearly, the banks have not fully passed on the hike in market rates, and “We have never seen such low credit rates in relation to inflation”, emphasizes the economist. Indeed, real estate credit still shows negative real interest rates.

It has even become a matter of concern for the ACPR, which is always eager to avoid unprofitable banking. Because, for now, the banks are clearly selling mortgages at a loss. According to the quarterly survey of the European Central Bank (ECB), the margins of French banks even collapsed in the second quarter, reaching a negative 67 basis points, when they were already in the red (-25 basis points) in the first quarter.

This is even an exception in Europe where the average margins on real estate loans in the euro area stabilized from one quarter to the next (-10 basis points all the same, compared to -9 basis points in the first quarter), as evidence of a greater ability of non-French European banks to bear the increase in refinancing costs. The existence in France of a relatively low usury rate (including insurance and administration costs) – which was raised on 1 July to 2.57% for a loan over 20 years, compared to 2.4% for first – undoubtedly partly explains this restraint on the part of the banks.

At the same time, the duration of loans continues to lengthen, loans over 25 years even represent more than half of production (51% and 65% for loans over 20 years). In June, the average duration of a loan is now spread over 240 months (20 years), so much so that the lengthening of the duration has almost perfectly compensated for the increase in rates. This is also a consequence of the recommendations of the High Council for Financial Stability (HCSF), which set the maximum effort rate for a family’s debt at 35% (with a flexibility margin of 20% to be reserved as a priority for major residences and first-time buyers).

Exclusion of part of the customers from the market

The drop in production finds another explanation, according to Michel Mouillart. “Production is down because families can no longer enter the market”, He believes. Indeed, the nature of the market has radically changed. “The customers who present themselves on the market today have higher incomes”observes the expert.

According to the Observatory, average income increased by 4.7% between 2021 and 2022, a much greater increase than that in purchasing power. At the same time, borrowers are making larger real estate transactions, which explains the nearly 10% increase in the average loan amount. “We have rarely seen such an evolution”underlines Michel Mouillart.

With property prices not weakening (yet), purchased surfaces growing and, above all, a personal contribution that goes “like never before” – almost 17% from one year to the next “, it is truly an upheaval in the real estate credit market which is currently establishing itself in favor of the most privileged customers.

On the part of brokers, it is the usury rate, which would be too low in times of rate hikes, that explains the exclusion of more modest clients. This is undoubtedly an observation to qualify because banks always try to preserve their customers by playing on the other levers of the effective rate, such as insurance … or the commissions paid to intermediaries. Several networks, such as Société Générale, have also suspended their business relationships with brokers.

The Banque de France persists and signs

The question of the exclusion of low-income households from the market is firmly rejected by the Banque de France, which proposes its own statistics to justify both the HCSF constraints and its decision not to change, last June, the method of calculating the wear rate. At the beginning of July, the Banque de France thus showed a growth rate of the production of loans of 6.8% in May to 27 billion euros, or “the highest level achieved in the last five years”.

The founder of the online broker Pretto, Pierre Chapon, has his own explanation for this apparent discrepancy between the Banque de la France and the Crédit Logement figures, and even more so, the perception of the field. “The figures of the Banque de France correspond to the actual release of the funds from a loan that could have been granted three or four months earlier, and therefore under completely different market conditions”explains this professional. And for him, the dropout rate cap will actually take effect starting next September in official statistics. The usury rate is in fact calculated, every quarter, on the average rate of loans recorded in the previous quarter, increased by one third. Hence a significant lagging effect as rates go up faster and faster each month.

HCSF constraints, which became mandatory for banks on January 1, may also have played a role in this reduction in output. According to the ACPR, output beyond the effort and duration thresholds set by the HCSF has dropped from 28.8% in the first quarter of 2021 to 16.8% in the last quarter of 2021, then to 14.2% in the first quarter of 2022 (i.e. below the allowed flexibility margin of 20%). It is therefore a non-negligible share of production which has thus disappeared from the market.

“Production is down because, perhaps, the banks are now complying with these recommendations, which reduce the chances of entry into the market for some customers, especially those with the least personal contribution”, suggests Michel Mouillart. With all of these factors combined (interest rates, HCSF, usury rate, high real estate prices, etc.), low-income clients simply no longer have a place in the mortgage market.

A credit professional is even more virulent: “the Banque de France tries to break through the market, in particular to lower prices in the big cities”. A process of intent that begins to seriously annoy even the governor of the Banque de France, François Villeroy de Galhau.