Two years: this is the time that this bubble with historically low mortgage rates will have lasted. Started in December 2019, their increase was accentuated last May with the Covid-19 crisis. Coupled with low usury rates and the tightening of conditions for accessing credit, this rise was logically accompanied by an increase in loan refusals . Good news, however: on July 1, 2020, the wear rates were revised upwards. Hopefully this measure will reopen the door to certain households excluded from the market.
Credit rates are on the rise, but remain attractive
After two years marked by credit rates regularly kept below the inflation rate, rates are starting to rise. This trend, which started slightly in December 2019, was reinforced with the Covid-19 crisis. Faced with rising risks and uncertainty about the development of the economy and the labor market, base rates rose by several points in May. According to figures from the Housing Credit Observatory / CSA, they were on average 1.25% (excluding insurance and security costs) in May against 1.17% in April and 1.12% in November 2019. In July,mortgage rates are expected to increase slightly. And it is the borrowers with the worst profiles (low level of income, low or even no personal contribution, long-term credit) who register the largest increases. In the line of sight in particular: seniors, certain professions at risk and first-time buyers.
The wear rate and the chisel effect
This rate hike would not pose so much of a problem if it were not coupled with another phenomenon: a low usury rate. As a reminder, the usury rate refers to the rate at which credit institutions cannot grant loans. In addition to the borrowing rate (or nominal rate), this usury rate applies to the Annual Global Effective Rate (APR) which also includes the administrative costs, the costs due to intermediaries (broker for example), the costs insurance and compulsory guarantees, account opening and maintenance costs, the cost of valuing the property. This ceiling rate set each quarter by Bank One aims to protect borrowers from too much debt. The other side of the coin: it sometimes deprives them of any possibility of mortgage. If the annual percentage rate of charge (APR) exceeds the usury rate, the credit is in effect refused. A situation more and more frequent in recent weeks as evidenced by the figures: the proportion of rejected applications was 9.8% at the end of June against 6.6% at the end of May, and 5.4% in 2019 at the same period. . This is the "scissor effect": under the double effect of the rise in credit rates and a low usury rate, the gap between the two has narrowed, leaving little room for costs, insurance and brokerage fees in particular.
Increasingly strict grant conditions
The conditions of access to mortgage loans, already tightened following the recommendations of the HCSF (High Council for Financial Stability) and Bank One of December 2019, are also increasingly strict. In an uncertain post-Covid economic context and a lack of visibility on the risks of layoffs, the banks are very selective. More and more cases, whose risk profile is considered higher, are thus refused their mortgage application . The files without contributions, those exceeding the threshold of 33% of debt or the credits of a duration of more than 25 years are particularly targeted. The Covid crisis requires, the type of profession and contract as well as the stability of income are factors that are added to these increasingly severe selection criteria.
A clarification: the increase in the wear rate
Good news, however: alerted by real estate professionals, Bank One revised the wear rates upwards on July 1, 2020 . Another lever, of a structural nature, would be to modify the method of calculating this usury rate in order to increase the difference between the average rates and the ceiling rate, and thus reintegrate excluded households. This is precisely one of the requests of Apic (Professional Association of Credit Intermediaries). Hopefully she will be heard.