Real estate credit: The market is seized by the rise of the rates, the professionals are worried

With the rapid rise in interest rates, it is becoming increasingly difficult to obtain a property loan, according to brokers and developers, who are worried about the consequences of these difficulties in the longer term.

By Mysweetimmo with AFP, 24 August 2022

Estimated reading time: 4 minThe rate of usury pointed out by brokers

The main obstacle according to credit brokers: the usury rate. Revised each quarter by the Bank of France, it sets the maximum rate at which banks are allowed to lend.

Currently, it is 2.57% for 20-year mortgages, including all costs, including insurance and any broker's commission.

However, as banks are themselves borrowing at a higher rate than at the beginning of the year, they may be tempted to squeeze out brokers to preserve their margins.

"The only people who are going to be able to borrow are those under 45 who are in good health and at the same time have high enough incomes and personal contributions to be interesting for the banks. But that's one customer out of two, not more", fears Olivier Lendrevie. Olivier Lendrevie, president of the network of brokers Cafpi fears.

"When, because of a problem of parameter setting of a regulation, you put out of play a potential purchaser on two, you unbalance the market and you create the conditions of a crisis which can be very serious", he warns.

Buyers in a better position could indeed negotiate their purchases better, for lack of competitors, and cause property prices to fall.

According to a survey commissioned by brokers' associations, 40% of the professionals questioned estimate that at least four out of ten files have been refused since the beginning of the year.

The usury rate, a measure to protect borrowers or exclude them from credit

Real estate and finance professionals are more cautious.

"We do not have yet a feeling as strong as the brokers but that will arrive, automatically", testifies with the AFP Peggy Montesinos, specialist in the real estate to the Superior Council of the notary's office.

"Today, even if the rates go back up, they remain attractive and much lower than inflation. The fact remains that the combination of the usury rate and the rise in rates is making some of the first-time buyers, particularly the most modest and youngest, less able to afford a property," Véronique Bédague, managing director of Nexity, told AFP.

The banks "are vigilant to the indicators which could testify of tensions on the real estate credit. These indicators are multiplying as the days go by, as can be seen by the French who are looking for a loan to buy their home," said the French Banking Federation (FBF).

"The banking profession is therefore sensitive to the fact that the usury system, this measure of protection of borrowers, does not become a mechanism of exclusion of households to finance their solvent projects", adds the professional organisation.

Bruno Le Maire will discuss the subject with the governor of the Bank of France

The Bank of France, on the other hand, clearly distances itself from the brokers' observation.

The institution recalls that the usury rate is made "to protect households that borrow, and not the interests of brokers or lenders.

A "possible effect of eviction" of the borrowers "did not exist significantly before the end of June; we will look precisely for the end of September". it added.

In a publication dated 2 August, the central bank notes that "production of housing loans is gradually beginning to normalise" while remaining "above the monthly averages of recent years".

It records a 6.2% growth in outstanding loans to individuals in June over one year, supported by the "housing" component (+6.6%). The new loans granted represented 22.7 billion euros in June, down compared to May (26.8 billion) but "higher than the monthly averages observed over the last 5 years" which vary from 16.9 to 22.8 billion, underlines the central bank.

In addition, the rise in interest rates for new loans continues "very gradually": 1.26% on average in May, 1.35% on average in June and 1.44% expected in July, according to the central bank. However, this is the nominal rate, to which are added all the costs associated with obtaining a loan, to obtain the overall effective rate of the loan (TAEG), capped by law.

The Minister of the Economy, Bruno Le Maire, has promised to discuss the subject "in the first few days of the new school year" with the Governor of the Banque de France.

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