When it comes to mortgages, frustration is gaining ground. On the one hand, there are the French who are struggling a little more every day to get a bank loan. On the other, the banks, which lend less, much less. According to the Banque de France, the number of new mortgages has fallen by almost 40% in one year. “It is becoming more and more difficult” to access real estate credit confirmed the Minister of the Economy, Bruno Le Maire, Sunday evening, guest of the 8 p.m. newspaper of France 2. “It is not that the banks do not want to lend more, but it is because they are forced not to do so by various mechanisms”, retorts to L’Express a real estate manager of a large French bank. “It’s very very frustrating not to be able to support our customers, because it’s our core business,” he adds.
Rising interest rates are not unrelated to the situation. Indeed, the average rate of mortgage loans exceeded the 3% mark in March 2023, against less than 1% at the end of 2021. This is a first for 14 years, according to Crédit Logement. While few rebalancing measures emerge, not even a significant drop in house prices.
A sustainable rise
The rise in interest rates should last several more months and only find stability at the end of 2023. In an interview granted on April 25 to the newspaper The world, the chief economist of the European Central Bank (ECB), Philip Lane, believes that a further rate hike is necessary to continue the fight against inflation, which is far from over. “For the next meeting on May 4, the current data indicates that interest rates will have to be raised again. It is not yet the time to stop,” he explains. In the space of two years, the ECB’s deposit rate has risen from -0.5% to 3%. An unprecedented increase since the creation of the euro zone. “Several indicators allow us to say that interest rates will increase further, indicates Sandrine Allonier, spokesperson for Youfinance.com. Today, if French banks do not lend above the rate set by the ECB, they are not profitable.” In fact, the ECB’s rising rate automatically raises those of national banks. “In addition, as long as inflation is not brought under control, the ECB will continue its policy of raising rates”, continues Sandrine Allonier.
Another mechanism contributing to this rapid rise in interest rates is the monthly increase in the usury rate. The latter corresponds to the maximum legal rate that banks are authorized to charge when granting a loan. This is to protect borrowers from possible abuse. Usually, this rate is set at the end of each quarter by the Banque de France, but now (since February 1 and until July 31) it is reviewed every month in order to “better adapt to the market” , specifies Bercy. “The acceleration of the rise in wear rates directly affects that of rates for credits”, underlines Sandrine Allonier.
First-time buyers more affected
This revaluation of the wear rate could, however, provide a breath of fresh air for credit institutions to grant more loans. “As of July 1, usury rates will be between 4.80% and 5%, which will give interest rates between 4% and 4.30%. This increase in the usury rate will allow banks to ‘have room for manoeuvre,’ says Sandrine Allonier. In other words, if the banks regain a certain level of profitability, this should encourage them to lend again, whereas today there is a real problem of loan supply. “As soon as the Banque de France increases its rate of wear, it is as many additional margins for the banks. Because today all the banks distribute credit at negative rates”, notes the real estate manager of a large French bank. .
However, faced with these increased rates, another problem emerges: that of the collapse in demand for credit. “We are right in the middle of it, underlines the same bank manager. We are already seeing a fall in demand for mortgages”. And for good reason: the borrowing capacity of households is greatly reduced. To back it up, Sandrine Allonier, spokesperson for YouFinance.com, takes as an example a couple whose income amounts to 4,200 euros per month. “In 2021, a bank could lend them 320,000 euros over 20 years, with an interest rate of 1%,” she explains. “Mid 2022, with a rate of around 2%, they could only borrow 272,728 euros. And at the start of 2023, with a rate of 3%: 248,700. In two years, this couple has lost 52,000 euros in capacity to ‘loan’. And to add: “When interest rates are at 4%, this same couple will only be able to borrow 227,700 euros.”
An observation shared by Séverine Amate, director of press and public relations in real estate. “This significant rise in rates over the last ten months is more expensive for young households. The first victims of these rate increases are first-time buyers,” she opines. But this effect of the collapse in demand for loans is also beginning to affect second-time buyers. “We observe more senior profiles, already having goods and a contribution, but not enough, who are refused a mortgage”, points out Séverine Amate.
An urgent need for rebalancing
To facilitate the allocation of credits, Bercy is thinking of relaxing the conditions for granting bank loans, in particular via the derogations provided for by the rules of the High Council for Financial Stability (HCSF). This is basically what Bruno Le Maire announced on the France 2 set on Sunday evening. “I would like us to relax things a bit,” said the minister. According to the HCSF criteria, the borrower’s effort rate can no longer exceed 35% and the duration of the loan can no longer go beyond 25 years, with the exception of 27 years for a purchase on plan. The banks do have a margin of flexibility to derogate from the rules on 20% of the loans they grant every month, but it would seem that this margin has been difficult to manage in recent months, due, among other things, to their non- profitability.
However, the Banque de France, for its part, estimates that this margin of flexibility is only used up to 14.5%. In other words, the constraints of the HCSF would therefore not be a real problem. “It is possible that some banks hide behind the recommendations of the HSCF to avoid lending, but in fact few loans reach the margins authorized by the high council”, notes Sandrine Allonier. “In reality few households agree to go into debt up to 35%, especially in an inflationary period, otherwise they no longer live”. For the specialist, the solution could find more of an outcome in an extension of the duration of the credits. “Automatically, this would erase the decline in borrowing capacity,” she adds.
In addition, although a fall in real estate prices has been observed for several months in France, it is not yet sufficient to lead to a rebalancing of the real estate market in the face of soaring interest rates. “There is a certain landing in prices, but in reality it would take a drop of 10 to 15% for it to compensate for the rise in rates, and we are far from it”, comments Séverine Amate. “Today, sellers are in a state of denial. It happened so quickly. They don’t want to sell their property for less, let alone sell it off.” According to the specialist, this could give rise to situations of withdrawals of real estate from the market by sellers, while waiting for better days. A scenario of immobility of the market that many professionals in the sector fear.