2023-12-04 20:33:00
The Ministry of the Economy and the Banque de France to the aid of real estate loans. This Monday, December 4, the two organizations presented ways to revive the market in free fall, during the quarterly meeting of the High Financial Stability Council (HCSF), which was held in the morning.
The rules governing real estate credit will therefore be revised marginally, and the examination of banks’ refusals in this area could be more careful in the future. “Three technical adjustments” which “do not affect the fundamentals” were notably proposed by the governor of the Bank of France, François Villeroy de Galhau. The latter specified to Agence France-Presse that “none risks putting households in a situation of over-indebtedness”.
The main principles thus remain set in stone: banks do not have the right to sign a real estate loan if the total amount of borrowers’ expenses related to housing exceeds 35% of their income (effort rate), nor for a period of more than 25 years. These terminals can be bypassed in 20% of cases, provided that this primarily concerns main residences and targets, in almost a third of cases, first-time buyers.
Loans up to 27 years
Among the three adjustments decided on Monday, banks will be able to waive the maximum limit of the loan duration, to go up to 27 years, if work represents 10% of the total amount of the operation. The HCSF also decided “to authorize credit institutions to exclude the interest charge associated with bridging loans” in the calculation of the effort rate. However, the amount of the bridging loan must not exceed 80% of the value of the property sold.
Finally, banks will have more flexibility to deploy their quota of exceptions. They may occasionally exceed the limit of 20% over a quarter if they fall below this threshold by counting the following two quarters.
Towards a re-examination of refused files
The HCSF also declared itself in favor of a Place agreement for a second examination of refused real estate loan files, an idea launched by the governor on November 17 and taken up by Bruno Le Maire. This review system “must be simple, accessible and effective,” the governor of the Banque de France told AFP. It would be “transitory and temporary”, would be done on a case-by-case basis, at the request of the applicant for the loan, and would come into force at the beginning of February, according to a source close to the HCSF.
“The banking profession reaffirms its mobilization for the healthy financing of the French economy, and its daily utility values,” reacted the French Banking Federation (FBF). The professional federation does not, however, take responsibility for the initiative of this re-examination proposal, which the HCSF nevertheless attributes to it.
An alignment of credits with prices is “desirable”
The objective of the HCSF is to restart the production of real estate loans, which has fallen below 10 billion euros per month since August, according to the Banque de France, unheard of for more than 7 years. Households are less inclined to borrow because of the increase in rates initiated by the European Central Bank (ECB) last year and passed on by banks in their commercial policy. The average rate of new housing loans excluding renegotiations, which was below 1.1% until March 2022, rose in a year and a half to 3.73%, according to data from the Banque de France, for September 2023. However, at the same time, real estate prices only adjust downwards very significantly. “It is now desirable that production (of real estate loans) stabilizes and then starts again thanks to the stabilization of interest rates, and the stabilization, or even the fall, of real estate prices,” argued François Villeroy de Galhau.
Monday’s decisions are far from unanimous. “These rules, which are increasingly complex as changes are made, and the millimetric exemption possibilities that accompany them cannot be operationally controlled at the scale of banking networks,” reacted the general director of the CAFPI broker network Caroline Arnould. The rules for granting real estate loans are reviewed every quarter by the HCSF, a body chaired by the Minister of the Economy and on which the governor of the Banque de France sits.
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