Mortgage loan insurance: the success of the 2022 Lemoine law
The real estate market is suffering between the sharp rise in interest rates and usury rates unsuitable for this sudden movement. However, there is one area that is resisting well in this complicated context, and which is gaining momentum also thanks to the entry into application of the Lemoine law in mid-2022: the delegation of borrower insurance. The Lemoine law or the borrower insurance revolution The legislation on borrower insurance has evolved considerably since the Lagarde law came into force in September 2010. Faced with the virtual monopoly of banks over this essential product for obtaining a mortgage, the legislator introduced the right to free choice of the insurance contract, which validates the principle of delegation: the loan candidate can take out the insurance of his choice and refuse the collective agreement offered by his bank, subject to equivalence of guarantees between the two offers. Less restrictive for banks, the law has not broken their dominant position: more than a decade later, they still hold 87% of the market share, an aberration when insurance marketed by outside insurers is between two and four. times cheaper. Despite two subsequent measures (the 2014 Hamon Law and the 2018 Bourquin Borrower Insurance Amendment) which authorized the change of insurance during the loan on the maturity date, the borrowers could not fully exercise their right to free choice of insurance contract. While it remains complicated to implement in the initial underwriting, the delegation of mortgage insurance has recently been facilitated thanks to the Lemoine Act. Voted in February 2022 and implemented from June 1, 2022, this final regulation authorizes the change of the borrower’s insurance at any time and free of charge, the day following the signing of the loan offer. Mortgage credit insurance thus becomes the only insurance that can be canceled at any time, without the insured having to comply with a minimum underwriting commitment, as in home insurance, car insurance and mutual health insurance. The Lemoine law also strengthens the obligations of banks: any request for a borrower’s insurance proxy must be answered within 10 working days. Any refusal must be fully motivated in writing, on a single document. The bank must inform the borrower annually of its right to change insurance on any durable medium. Savings in borrower insurance with the Lemoine law From 1 September 2022, any borrower, regardless of the precedence of their mortgage, can cancel the current insurance and replace it with a cheaper offer with at least equivalent guarantees. It appears that borrowing households have fully understood the financial stakes of the Lemoine Act. At the Magnolia.fr broker, insurance exchange requests increased by 200% in September, allowing customers to save hundreds or even thousands of euros over the remaining loan term. For a loan of 250,000 euros over 25 years, the gain is about 15,000 euros by switching from bank insurance to delegated individual insurance within three years of signing the loan offer. Faced with a real estate market penalized by the rise in interest rates and the problem of usury rates, requests for delegation of the borrower’s insurance on new loans are mechanically less frequent. Among mortgage insurance brokers, the resolution under the Lemoine law now represents 80% of the mandate, compared to 60% in 2021, a sign of enthusiasm for this system. At a time when the purchasing power of families is compressed on all sides, the Lemoine law makes it possible to save immediately by reducing the insurance contribution, and by extension the overall cost of a mortgage. Example 1 Jean and Marie, a 30-year-old non-smoking couple, borrowed € 250,000 over 20 years in October 2021 at a borrowing rate of 1.10%, with insurance at the bank rate of 0.34% on each garment. Their insurance costs them € 142 per month (2 x € 71), or a total of € 34,000 over 20 years. In November 2022, our couple embarked on a path of insurance change, competing offers thanks to a mortgage loan insurance comparator. The best insurance proposal provides for a rate of 0.10%, with equivalent guarantees. The monthly premium drops to 40 euros each, for an insurance cost of 9,037 euros over the residual duration. Savings: € 23,259! Example 2 In October 2019, Paul, 45, a smoker, borrows the sum of € 350,000 over 25 years at a borrowing rate of 1.05%, covered by bank insurance at a rate of 0.54%. He pays 158 euros a month for insurance, for a total cost of 47,250 euros. By changing the insurance 3 years later, he gets a rate of 0.25%, or a monthly contribution of 66 euros and a cost for the remaining period of 17,531 euros. Save € 24,031! Doing home mortgage insurance simulations online to get the best contract in 2022. The Lemoine law contains two more measures that promote the inclusion of borrowers with health problems: the end of medical selection for loans under € 200,000 (€ 400,000 if two borrowers with 50% of the insurance share on each item), repaid before the insured’s 60th birthday, the extension of the right to be forgotten from 10 to 5 years for former cancer or hepatitis C patients. Sick or former sufferers who have taken out expensive insurance due to their health history now have a huge opportunity to significantly reduce the cost of their insurance thanks to the Monk Law.