Debt ratio capped at 33%, raises usury rates. These are all avenues emitted by the High Council for Financial Stability to anticipate the risks linked to the sustained demand for housing loans.

 

Clear increase in outstanding loans over one year

Clear increase in outstanding loans over one year

The real estate market is running at full speed thanks to the cannon credit rates which very strongly encourage the French to go to conquer the property. This dream, for many households, has actually become a reality with low rates. In most cases, financing solutions from banking establishments are required to pay the high amounts of real estate transactions. Faced with strong demand coupled with exceptional borrowing conditions, the release of funds continued to grow strongly compared to the previous year.

In fact, households went into debt by 6.6% of outstanding credit over one year to finance stone in September 2019. They indeed borrowed 21.7 billion dollars during this month. This growth has followed a very stable trend since the summer period with rates close to 6.5%. The Clear Save Bank, the source of the statistical data, reports a total of $ 1,060 billion in mortgage loans outstanding. This amount is neither more nor less than the housing debt that households are paying down in France.

 

Slowing down mortgage loan requests to control French debt

mortgage loan requests to control French debt

The tap on credit for real estate purchase projects therefore continues to flow with great flow, which causes concern among the authorities who are responsible for regulating the market and foreseeing any risk for the system. Concretely, the dynamics of housing loan production are such that the High Council for Financial Stability (HCSF) has taken the lead to anticipate a hypothetical runaway. The objective is then to identify the factors that could lead to an uncontrolled level of indebtedness likely to harm the ability of households to repay their credit which would destabilize the financial health of banks.

The HCSF thus conducted a consultation with professionals, concerned both closely and from afar by the mortgage market, in an attempt to find solutions against a risk of overheating. Among the proposed ideas, one stands out about the budget devoted to credits. In the law, there is no text that frames this indicator, although in practice it is common for banks to limit themselves to a debt ratio of 33% in order to limit the weight of maturities in household finances. And it is on this point that the HCSF could intervene to create a legal ceiling that professionals must not exceed.

In addition, the other track of the HCSF is to study a clear rise in usury rates which represent the maximum APR that banks can offer in a loan. With this action, professionals would be able to offer higher APRs, which will have the effect of increasing the wear rates, which are partly calculated on the basis of the average of all the rates offered on the market during for the past three months. For the regulator, it is indeed necessary to improve the profitability of banks on mortgage loans and above all to curb demand.

Finally, the last point dwells on the Prepayment Allowances (IRA) paid by a borrower to his home bank when he repurchases his home loan from a competing establishment. The HCSF considers that they are too weak to avoid massive renegotiation requests which again endanger the margins of the banks. In fact, they are equivalent to 6 months of interest accumulated at the average mortgage rate.

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