“We will study new measures to further relax the conditions for granting credits.” In an interview at the Parisian posted online on Saturday evening, two days before a meeting of the High Financial Stability Council (HCSF) organized this Monday morning, the Minister of the Economy Bruno Le Maire pleaded for a relaxation of the conditions for granting real estate loans. The objective? Halt the sharp decline in loan production, falling to the 2015 level with 9.2 billion euros last September, which is affecting the entire real estate sector.
Real estate credit, whose rates have quadrupled in just a year and a half, is a sensitive subject in the current context of inflation, which complicates access to the real estate market for many households. The rules for granting real estate loans, in particular their duration and their weight in relation to the income of borrowers, are reviewed every quarter by the High Financial Stability Council (HCSF), a body chaired by the Minister of the Economy and in where the governor of the Bank of France, François Villeroy de Galhau, sits.
During the HSCF meeting, organized this Monday, “possible new technical adjustments will be studied, provided that they do not lead to an increase in the risk of over-indebtedness”, warned François Villeroy de Galhau on November 17. The Banque de France is in fact very reserved on the question of changes in borrowing conditions, unlike Bercy.
Effort rate, loan duration…
Several avenues are being considered, report The Parisian as well as BFMTV. This is firstly the possibility of playing on the effort rate, which corresponds to the maximum debt rate that a borrower can bear to repay their loan. This rate is currently set at 35% of income. Brokers are calling for “breaking the lock” on the maximum debt ratio. One of the ideas on the table is stopping the taking into account of the bridging loan in the calculation of the debt ratio.
This type of credit is granted as part of a housing purchase-resale project, providing funds to purchase a new property while waiting to sell the old one. Removing the bridging loan from the calculation of the effort rate would make it possible to unblock many transactions.
The second option is to act on the maximum loan duration, currently set at 25 years maximum. The idea is to allow it to go up to 27 years if the buyer plans to carry out major renovation work, for at least 10% of the total amount of the loan. This could thus “mechanically increase the debt capacity of borrowers”, specifies at the Parisian a source in Bercy.
Furthermore, the Ministry of the Economy plans to give more flexibility to banks. These must therefore comply with HSCF standards: a loan duration limited to 25 years and a debt rate for a borrower limited to 35%. Banks can, however, deviate from these rules for 20% of loans granted, depending on the projects and profiles of the buyers. “Until now, this 20% exemption was taken into account quarter by quarter, explains at the Parisian a source in Bercy. This could instead be done over three rolling quarters, in order to give banks more flexibility in granting credit.”
An amicable procedure between the borrower and the banker?
In addition, Bruno Le Maire indicated on Saturday at the Parisian his “wish” to “set up an amicable procedure, between the borrower and the banker, when the latter refuses a real estate loan”. For the minister, “this procedure should help to understand why the loan was refused and possibly, if the borrower’s situation allows it, lead to a review of the decision.”
François Villeroy de Galhau, for his part, called on real estate credit players to respect the standards put in place by the HCSF, a message addressed to brokers and banks alike. “It is desirable that the supply of bank credits now gradually resumes, but without risking over-indebted households: beware of suggestions to forget the common sense standards of the HCSF,” warned the governor of the Bank of France in an interview to the Republican Lorrain on November 22.
He also recently underlined “the continuous and singular progression of household debt”, as well as “the marked drift in loan durations and the repayment burden”, during the annual conference of the Prudential Control Authority and resolution (ACPR) in November. Will Bercy and the Banque de France succeed in finding a compromise?