As rates rise, some individuals are stuck in the usury rate. If they don’t review their project, they won’t be able to get a loan.
After setting her sights on an apartment under construction, 31-year-old Camille is about to take out a mortgage when her broker announces, in early May, that the case is blocked: with the borrowing rate offered by her bank, she would be exceeded the so-called “wear rate”, which is prohibited. “It was the first time I had heard of this rate,” this Taiwanese who has lived in France for almost 10 years tells AFP about her, hoping that her broker will be able to find an agreement with her bank.
Intended to protect individuals from abusive lending terms, the usury rate, set each quarter by the Banque de France, is relatively unknown to the general public. In concrete terms, no bank, including costs, can grant loans at a rate higher than this threshold calculated on the basis of the average rates granted in the previous three months, plus 30%.
A “very fast” climb.
However, since mortgage rates increased on average from 36% to 70% between January and May – according to broker La Centrale de Financement – and since the usury rate is always calculated on the basis of loans granted in the first quarter of 2022, more and more proposals exceed this legal scale. This “rapid” and “unusual” increase, comments Maël Bernier, director of communications, of Meilleurtaux, is explained by the increase in interest rates on French state loans on which banks are based.
In Camille’s case, the bank offered a rate of 2.20% over 25 years, in line with its budget and financial standards that require a family’s monthly mortgage repayments not to exceed 35. % of his net income. But when all fees were added, the annual percentage rate (APR), which serves as a benchmark, was 2.65%, well above the usury rate currently set at 2.40%.
“We process an average of five cases per month and of the five this month, all have had usury rate issues,” says Camille’s broker, partner of a small independent company who prefers to remain anonymous.
On the files in which “we had (previously) an automatic agreement of all the parties, today we spend almost two or three hours looking for a solution”, he explains.
Between 10% and 15% blocked
According to several brokers interviewed by AFP, between 10% and 15% of the cases will no longer be able to obtain a loan, if not to review their project. Main victims: the over 40s, for whom “it is very difficult not to exceed the usury rate”, explains Maël Bernier, because they pay more for the borrower’s insurance, which covers various risks such as death, illness or disability, protecting both borrowers and banks against default.
Sophie, 51, almost paid the price. Despite his bank’s offer of 1.27% in 25 years – a rare loan term at this age – the APR has exceeded the usury rate. Fortunately for her, the bank revised its offer slightly downwards, to 1.25%, opening the door to an APR of 2.39%, just enough to be in her nails. While the usury rate will not be recalculated until July 1 and rates are expected to continue to rise until then, Sylvain Lefèvre, president of La Centrale de Financement, calls for the suspension of the usury rate, which “is no longer life related. real economic “, or for a redefinition of the calculation method.
But beyond the problem of the usury rate, the increase in rates affects all buyers, since the cost of mortgages is mechanically higher. According to the Central Finance Department, a loan of € 180,000 over 20 years at 1.45% will ultimately cost € 27,446. That’s almost € 10,000 more than if it had been subscribed at the beginning of the year. “The projects whose financing plan is more tense may need to be reworked”, warns Société Générale which advises “to check the financing plan with your consultant before committing”.